Extinguishment of Obligation PDF

EXTINGUISHMENT OF OBLIGATION - put an end to the obligation Modes of Extinguishment Obligations 1. Payment or performance; 2. Loss of the thing due; 3. Condonation or remission of the debt; 4. Confusion; 5. Compensation; 6. Novation; 7. Annulment; 8. Rescission; 9. Fulfillment of a...

EXTINGUISHMENT OF OBLIGATION - put an end to the obligation Modes of Extinguishment Obligations 1. Payment or performance; 2. Loss of the thing due; 3. Condonation or remission of the debt; 4. Confusion; 5. Compensation; 6. Novation; 7. Annulment; 8. Rescission; 9. Fulfillment of a resolutory condition; 10. Prescription; 11. Renunciation or waiver by the creditor; 12. Compromise; 13. Expiration of the resolutory term or condition; 14. Death of one of the contracting parties in personal obligation; 15. Will of one of the contracting parties; 16. Mutual assent or dissent; 1. PAYMENT - Normal and voluntary fulfillment of the obligation by the realization of the purposes for which it was constituted. Consist of not only the delivery of money but also the performance, in any other manner, of an obligation - Kapag may obligation ka in a form of money/delivery of something. Kapag may utang ka magbayad ka. Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. General Rule: There must be complete performance in the obligation to give, to do, or not to do. Exceptions: 1. Substantial performance in good faith; (delivery of something na kulang, but dapat may conviction na you already delivered) 2. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without any protest or objection; and 3. When the obligation has been converted to indemnification. (no longer consider as payment to the original obligation, but payment to the injury) Persons who may pay Obligation 1. The debtor himself or his legal representative; and 2. Any third person who has an interest in the fulfillment of the obligation May a third person pay the obligation of another? YES Rights of a 3rd person Payment made with knowledge and consent of the debtor 1. Right of reimbursement (isasauli yung binayad ng 3rd person) 2. Right of subrogation (mapapasa yung right sa 3rd person, the new creditor) Note: This may arise only kapag may alam at may consent ang debtor Payment made without knowledge and consent of the debtor 1. Right of reimbursement to recover only insofar as the payment has been beneficial to the debtor Subrogation - is a right available to the third person or payor whereby he is entitled to exercise all of the rights which the creditor could have exercised against the debtor and against third persons. Reimbursement - a simple personal action available to the 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 debtor Gratuitous Payments - payments effected by a third person who does not intend to reimbursed by the debtor (Donation) Debtor’s consent is necessary Rules on ordinary donation applies if consent is secured If consent is not secured, Art 1236 and 1237 will apply Formal Requisite in Donation - Must be written in public instrument both in giving and accepting the donation The person who pays the obligation should have the necessary legal capacity to effect such payment. Free disposal of the thing due Capacity to alienate the thing Absence of one or the other will affect the validity of the payment even if the creditor has already accepted the payment, it may be annulled by a proper action in court at the instance of the payor or his legal representative. To whom the payment should be made? Payment shall be made, as a general rule to: 1. The person in whose favor the obligation has been constituted; 2. His successors in interest ; or 3. Any person authorized to receive it a. Authorized by the creditor himself (conventional authority) b. Authorized by law or legal authority (incase a minor, guardian will receive) Wrong Person (Maling Tao) Payment made to authorized persons are, as a general rule, invalid except: 1. Payment made to a third person, provided that it has redounded to the benefit of the creditor 2. Payment made to the possessor of credit, provided that it was made in good faith - Credit are negotiable instruments, like check that is payable in demand Payment made to an incapacitated person (person who do not have legal capacity) Payment made to a person incapacitated to administer his property is valid: 1. If he has kept the amount or thing paid or delivered 2. Insofar as the payment has been beneficial to him The payment is beneficial to an incapacitated person when that which has been paid or delivered is applied or spent for some rational, necessary, or useful purpose for his benefit. In obligation to give a determinate thing - The debtor cannot fulfill his obligation by delivering a thing which is different from what is due although such may be of the same value or even more than that which is due. In obligation to do or not to do - The obligor cannot fulfill his obligation by substituting another act or forbearance. If the creditor accepts the delivery or substitution, such acceptance shall give the same effect as a fulfillment or performance of the obligation. Dacion en Pago - The transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation Property is alienated to the creditor in satisfaction of a debt in money; Law on sales shall govern Exception to the rule stated in Art. 1244 Legal Tender - Currency which may be used for the payment of all debts, whether public or private. Under our law, the legal tender of the Philippines would be all notes and coins issued by the Central Bank. Rules Notes is legal tender in whatever amount; Php 1.00; Php5.00, Php10.00 are legal tender in amounts not to exceed Php1,000.00; and 1¢; 5¢; 10¢; and 25¢ is legal tender in amounts not to exceed Php100.00 (BSP Circular 537, Series of 2006; Sec. 52, R.A 7653) Note: Other currency is cannot be considered as a legal tender How about checks, promissory notes etc? - Shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. Payment by Cession/Assignment - A 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: 1. Plurality of debts; 2. Partial or relative insolvency of the debtor; 3. Acceptance of the cession by the creditor Cession vs Dacion En Pago Debtor is in partial or Financial condition of the Debtor not necessarily in relative insolvency parties financial difficulty Universality of debtor’s Object Thing equivalent of the property performance of the obligation Release the debtor for the Effect Extinguished the obligation net proceeds of the things to the extent the value of ceded or assigned, unless the thing delivered there is a contrary intention Plurality of creditors is Number of Parties There may be only creditor essential Effects of Cession: Partial extinguishment No transfer of ownership to the creditors, only transfer of possession including administration Question: Attorney, matagal ko na pong pinipilit na bayaran yung utang ko doon sa pinagkakautangan ko po pero ayaw niyang tanggapin yung pera ko. Gulong-gulo na po ako, ano po ang gagawin ko? Answer: Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from the responsibility by the consignation of the thing or sum due. Tender of Payment - manifestation made by the debtor to the creditor to immediately comply with the obligation. - Offer and make intention to pay to the creditor Consignation - Deposit of the object of the obligation in a competent court in accordance with the rule prescribed by law after refusal or inability of the creditor to accept the tender of payment. Consignation alone shall produce the same effect in the following cases: 1. When the creditor is absent or unknown, or does not appear at the place of payment; 2. When he is incapacitated to receive the payment at the time it is due; 3. When, without just cause, he refuses to give a receipt; 4. When two or more persons claim the same right to collect; 5. When the title of the obligation has been lost. Special Requisites of Consignation: 1. That there is a debt due; 2. That the payment or performance was refused or the creditor was incapable of accepting the payment; a. Requisites: i. Tender of payment must be made before consignation ii.Tender of payment must have been unconditional iii. That the creditor must have refused to accept the payment 3. Previous notice of the consignation has been given to the persons interested in the fulfillment of the obligation; 4. The thing or amount due had been placed at the disposal of judicial authority; and 5. That after the consignation had been made, the persons interested in the fulfillment of the obligation has been notified thereof. Exceptions to the rule that there must be a previous tender of payment: 1. When the creditor is absent or unknown; 2. When the creditor is incapacitated; 3. When the creditor refused to give a receipt; 4. When two or more person claim the right to collect; or 5. When the title of the obligation has been lost. Effect of tender of payment Stops the accrual of interest Release the debtor from liability over the thing due Ask the judge to order the cancellation of the obligation Preserve the right of the debtor 2. LOSS OF THE THING DUE - The thing which constitutes the object of the obligation perished, goes out of commerce of man, or disappears in such a way that its existence is unknown or it cannot be recovered. Effect of Loss in Determinate Obligation to Give - Results in its extinguishment if the thing should be lost or destroyed without the fault of the debtor and before he has incurred in delay. Effect of fortuitous event Generally results in the extinguishment of the obligation, excepts: When by law the debtor is still liable even for fortuitous events When stipulated by the parties When the nature of the obligation requires the assumption of risk When the loss of the thing due is due partly to the fault of the debtor When the loss of the thing occurs after the debtor has incurred in delay When the debtor promised to deliver the same thing to two or more persons who do not have the same interest When the obligation arises from a criminal offense When the obligation is generic Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. Article 1266. The debtor in obligation to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. Causes of Impossibility Legal Impossibility - (Direct) when the law prohibits the performance or execution of the work agreed upon Physically Impossibility - Arises principally from the death of the obligor, when the act to be performed requires his qualification, or from the death of the obligee, when the act can be of possible benefit only to him. - May also arise form mere accident, or from the acts of the debtor himself in which there is no fault, or from the acts of third persons affecting the debtor’s capacity to execute work agreed upon 3. CONDONATION OR REMISSION OF DEBT - Remission; Definition - is an 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 in that part or aspect of the to which the remission refers. Requisites: It must be gratuitous Must be accepted by the obligor The obligation must be demandable CLASSIFICATION OF CONDONATION As a form Express - made with the formalities prescribed by law for donations Implied - can be deduced from the acts of the obligee or creditor As to extent Total - entire obligation is extinguished Partial - refers only to the principal or to accessory obligation or to an aspect thereof which affect the debtor 4. CONFUSION OR MERGER - Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person Requisites: 1. That the merger of the characters of creditor and debtor must be in the same person; 2. That it must take place in the person of either the principal creditor or the principal debtor; and 3. That it must be complete and definite merger of the qualities Example: A executed promissory note payable to B. B paid his debt to C using the promissory note executed by A. Turns out C is has an obligation to pay A. C then paid A the promissory note executed by the latter to B. Here the obligation is extinguished because it is absurd that A will enforce the obligation against himself. 5. COMPENSATION - A figurative operation of weighing two obligations simultaneously in order to extinguish them to the extent in which the amount of one is covered by the amount of the other. (Kwits) Requisites: 1. Two parties who are principal creditors and debtors of each other; 2. Both debts must consist in money, or if it be fungibles, must be of the same kind and quality; 3. Both debts must be due; 4. Bothe debts must be liquidated and demandable; 5. There must be no retention or controversy commenced by third persons over either of the debts communicated in due time to the debtor; and Retention - application of the credits of one of the parties to the satisfaction of the claims of a third person Controversy - refers to a case in which third persons claim to be the creditor 6. Compensation must not be prohibited by law Kinds of Compensation As to cause, compensation may be: 1. Legal - when it takes effect by operation of law from the moment all of the requisites are present (Arts. 1278-1279 of the Civil Code); 2. Voluntary - when the parties 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 3. Judicial - when it takes effect by judicial decree. Occurs where one of the parties to a suit over an obligation has a claim for damages against the other and the former sets it off by proving his right to said damage and the amount thereof. 6. NOVATION - Substitution or change of an obligation by another, resulting in its extinguishment or modification, either by changing its object or principal conditions; by substituting another in place of the debtor; or by subrogating a third person in the rights of the creditor Distinctive feature: It extinguishes the obligation,it also gives birth to another obligation Two-fold purpose - extinguishing the old obligation, and giving birth to a new obligation to take the place of the old Extinguishment is relative and not absolute Requisites: 1. Previous valid obligation; 2. Agreement of the parties to the new obligation; 3. Extinguishment of the old obligation; and 4. Validity of the new obligation Kinds of Novation AS TO ESSENCE 1. Objective or Real - Refer to the change either in the case, object, or principal conditions of the obligations. 2. Subjective or Personal - refers to the substitution of the person of the debtor (passive) or to the subrogation of a third person in the rights of the creditor (active). 3. Mixed - Combination of objective and subjective As to extent or effect Total - absolute Partial-mere modification Objective Novation 1. Changing the cause of the obligation; 2. Changing the object of the obligation; or 3. Changing the principal or essential conditions of the obligation Novation by substitution of the debtor - personal novation Effected with the consent of the creditor 2 forms Substitution by expromision - effected 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 Substitution by delegacion - Effected with the consent of the creditor at the instance of the old debtor with the concurrence of the new debtor, refers to the substitution of debtors effected when the original debtors offers and the creditor accepts a 3rd person who consents to the substitution. Expromision Delegacion Initiative does not The debtor offers the creditor accepts a come from the debtor and may be made 3rd person who consents to the without his knowledge substitution and assumes the obligation If the substitution is without the knowledge or against the will of the original debtor, the new debtor's insolvency shall not revive the original debtor's liability to the creditor If the substitution is with the knowledge and consent of the original debtor, the new debtor's insolvency shall revive the original debtor's liability to the creditor Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. Novation by subrogation Conventional subrogation - takes place by agreement of the original creditor, the 3rd person and the debtor Legal subrogation - takes place by force of law Article 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. Legal subrogation General Rule: Legal subrogation is not presumed Exceptions: 1. When a creditor pays another creditor who is preferred even without the debtor's knowledge: 2. When a third person not interested in the obligation pays with the express or tacit approval of the debtor; o (Arts. 1236-1237 applies) 3. 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 the latter's share.