CHAPTER 5- EXTINGUISHMENT OF OBLIGATIONS

Question 1

ART.1231 Obligations are extinguished:

Answer 1

(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.

Question 2

delivery of money, or
* the performance in any other manner of an obligation

Answer 2

PAYMENT/ PERFORMANCE

Question 3

HOW PAYMENT OR PERFORMANCE IS MADE
IF DEBT is:
monetary, delivery, doing personal undertaking, and not doing something?

Answer 3

1.Monetary Obligation – delivery of the money
2. Delivery of a thing/s– delivery of the thing/s
3. Doing a personal undertaking – performance of said personal undertaking
4.Not doing of something – refraining from doing the action

Question 4

REQUISITES FOR VALID PAYMENT

Answer 4

1. The very thing or service contemplated must
   be paid.
2. Fulfillment must be complete.

Question 5

• When the obligee accepts the performance, knowing its incompleteness or irregularity, and without ex- pressing any protest or objection, the obligation is deemed fully complied with.

Answer 5

CREDITOR IS ESTOPPED

Question 6

RIGHT OF CREDITOR TO REFUSE PAYMENT BY THIRD PERSON

Answer 6

a) if there is a stipulation allowing it;
b) or if said third person has an interest in the
fulfillment of the obligation (co-debtor, guarantor, even a joint debtor).

Question 7

PAYMENT BY A THIRD PERSON

Answer 7

(a) with the knowledge and consent of the debtor. (Here, the payor is entitled to REIMBURSEMENT and SUBROGATION to such rights as guaranty, penalty clause, or mortgage.)
(b) without the debtor’s knowledge or against his will. (Here, the payor is not entitled to subrogation; moreover, he is allowed only BENEFICIAL REIMBURSEMENT.)

Question 8

• the act of putting somebody into the shoes of the creditor, hence, enabling the former to exercise all the rights and actions that could have been exercised by the latter.

Answer 8

SUBROGATION

Question 9

Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be __________n, which requires the debtor’s consent. But the payment is in any case valid as to the creditor who has accepted it.

Answer 9

donation

Question 10

If person paying has no capacity to give:

Answer 10

(a) payment is not valid — if accepted;
(b) creditor cannot even be compelled to accept it;
(c) the remedy of consignation would not be proper.

Question 11

TO WHOM PAYMENT MUST BE MADE??

Answer 11

(a) to the person in whose favor the obligation has been constituted (the creditor);
(b) to the successor-in-interest (like the heirs);
(c) to any person authorized to receive it.

Question 12

• Payment to a person incapacitated to manage or administer his property is valid only:???

Answer 12

1) if the incapacitated person has kept the thing delivered; or
2) insofar as the payment has been beneficial to him.

Question 13

PAYMENT TO UNAUTHORIZED PERSONS

Answer 13

• The payment is valid BUT only to the extent of benefit (financial, moral, or intellectual) to the creditor.
• The payment must be proved, and is, therefore, not presumed

Question 14

WHERE PAYMENT MADE

Answer 14

1. In the place designated in the obligation
2. If there is no express stipulation:

Question 15

Undertaking is to deliver a specific thing

Answer 15

at the place where the thing might be at the moment the obligation was constituted. Otherwise, at the domicile of the debtor.

Question 16

Undertaking is to deliver any other thing (e.g. generic thing)

Answer 16

delivery must be made at the domicile of the debtor

Question 17

SPECIAL FORMS OF PAYMENT

Answer 17

1. Application of Payments
2. Dacion en pago
3. Assignment in favor of creditors
4. Tender of payment and consignation

Question 18

APPLICATION OF PAYMENT

Answer 18

• the designation of the debt which payment shall be made, out of 2 or more debts owing the same creditor
• to be valid: must be debtor’s choice or with the consent of debtor

Question 19

APPLICATION OF PAYMENTS Requisites:

Answer 19

1) Various debts of the same kind
2) Same debtor
3) Same creditor
4) All debts must be due
5) Payment not enough to extinguish all the debts

Question 20

RULE WHEN DEBTS ARE NOT YET DUE

Answer 20

• there may be application of payment even if all debts are not yet due if:
• Parties so stipulate
• When application of payment is made by the party for whose benefit the term has been constituted

Question 21

HOW APPLICATION IS MADE

Answer 21

• Debtor makes the designation
• If not, creditor makes it by so stating in the receipt that he issues – unless there is cause for invalidating the contract
• If neither the debtor nor creditor has made the application then application, is made by operation of law

Question 22

RULES IN CASE NO APPLICATION OF PAYMENT HAS BEEN VOLUNTARILY MADE

Answer 22

(a) Apply it to the most onerous/burdensome (in case the due and demand- able debts are of different natures).
(b) If the debts are of the same nature and burden, application shall be made to all proportionately.

Question 23

• mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor property for the satisfaction of monetary debt

Answer 23

DACION EN PAGO

Question 24

CONDITIONS FOR A VALID DACION EN PAGO

Answer 24

1. If creditor consents, for a sale presupposes the consent of both parties
2. If dacion will not prejudice the other creditors
3. If debtor is not judicially declared insolvent
   Note: Dacion en pago is governed by the Law on Sales

Question 25

the process by which debtor transfer all the properties not subject to execution in favor of creditors so that the latter may sell them and thus, apply the proceeds to their credits * extinguish up to amount of net proceeds (unless with a contrary stipulation)

Answer 25

CESSION/ASSIGNMENT IN FAVOR OF CREDITORS

Question 26

KINDS OF ASSIGNMENT:

Answer 26

1. Legal – governed by the insolvency law 2. Voluntary – agreement of creditors

Question 27

Requisites of Voluntary Assignment:

Answer 27

1. More than one debt 2. More than one creditor 3. Complete or partial insolvency of debtor 4. Abandonment of all debtor’s property no exempt from execution 5. Acceptance or consent on the part of the creditors

Question 28

EFFECTS OF ASSIGNMENT

Answer 28

* Creditors do not become the owner; they are merely assignees with authority to sell * Debtor is released up to the amount of the net proceeds of the sale * Creditors will collect credits in the order of preference agreed upon

Question 29

the act of offering the creditor what is due him together with a demand that the creditor accept the same (When creditor refuses w/o just cause to accept payment, he becomes in mora accipiendi and debtor is released from responsibility if he consigns the thing or sum due)

Answer 29

TENDER OF PAYMENT

Question 30

the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment; generally requires prior tender of payment

Answer 30

CONSIGNATION

Question 31

REQUISITES FOR VALID CONSIGNATION

Answer 31

1. Existence of valid debt 2. Consignation was made because of some legal cause 3. Prior Notice of Consignation had been given to the person interested in performance of obligation (1st notice) 4. Actual deposit / Consignation with proper judicial authorities 5. Subsequent notice of Consignation (2nd notice)

Question 32

EFFECTS OF CONSIGNATION

Answer 32

1. Debtor may ask judge to order cancellation of obligation 2. Running of interest is suspended 3. Before creditor accepts or before judge declares consignation has been properly made, obligation remains

Question 33

CONSIGNATION WITHOUT PRIOR TENDER Allowed when:

Answer 33

* Creditor absent or unknown/ does not appear at the place of payment * Incapacitated to receive payment at the time it is due * Refuses to issue receipt w/o just cause * 2 or more creditor claiming the same right to collect * Title of obligation has been lost

Question 34

* Includes impossibility of performance * May be partial or total

Answer 34

LOSS OF THE THING DUE

Question 35

When there is loss:

Answer 35

* When the object perishes (physically) * When it goes out of commerce * When it disappears in such a way that: its existence is unknown, or it cannot be recovered.

Question 36

IMPOSSIBILITY OF PERFORMANCE

Answer 36

1. Physical impossibility 2. Legal impossibility Directly – caused as when prohibited by law Indirectly – caused as when debtor is required to enter a military draft

Question 37

LOSS Obligation to deliver a SPECIFIC thing GENERAL RULE: Extinguished EXCEPTIONS:

Answer 37

1. Debtor is at fault 2. Debtor is made liable for fortuitous event because of a provision of law, contractual stipulation or the nature of the obligation requires assumption of risk on part of debtor

Question 38

LOSS Obligation to deliver a GENERIC thing GENERAL RULE: Not extinguished EXCEPTIONS:

Answer 38

1. If the generic thing is delimited 2. If the generic thing has already been segregated or it has become specific.

Question 39

LOSS Obligation TO DO GENERAL RULE:

Answer 39

Debtor is released when prestation becomes legally or physically impossible without fault on part of debtor

Question 40

EFFECTS OF PARTIAL LOSS

Answer 40

* When loss is significant – may be enough to extinguish obligation * When loss insignificant – not enough to extinguish obligation

Question 41

WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR * Presumption: Loss due to debtor’s fault (disputable) exception?

Answer 41

* Exception: natural calamity, earthquake, flood, storm

Question 42

- Gratuitous abandonment of debt by the creditor of his right - If donation, rules on donation apply - May be express or implied

Answer 42

CONDONATION / REMISSION

Question 43

CONDONATION REQUISITES:

Answer 43

1. There must be an agreement 2. There must be a subject matter 3. Cause of consideration must be liberality 4. Parties must be capacitated and must consent; requires acceptance by obligor; implied in mortis causa and expressed inter vivos 5. Formalities of a donation are required in the case of an express remission

Question 44

- character of debtor and creditor is merged in same person with respect to same obligation

Answer 44

CONFUSION/MERGER

Question 45

CONFUSION/MERGER REQUISITES:

Answer 45

1. It must take place between principal debtor and principal creditor only 2. Merger must be clear and definite 3. The obligation involved must be same and identical – one obligation only 4. Revocable, if reason for confusion ceases, the obligation is revived

Question 46

- It is a mode of extinguishment in the concurrent amount the obligation of persons who are in their own right reciprocally debtors or creditors

Answer 46

COMPENSATION

Question 47

COMPENSATION REQUISITES:

Answer 47

1. Both parties must be mutually creditors and debtors in their own right and as principals 2. Both debts must consist in sum of money or if consumable , of the same kind or quality 3. Both debts are due 4. Both debts are liquidated and demandable 5. Neither debt must be retained in a controversy commenced by 3rd person and communicated w/ debtor (neither debt is garnished)

Question 48

KINDS OF COMPENSATION

Answer 48

1. Legal – by operation of law; as long as 5 requisites concur- even if unknown to parties and if payable in diff places; indemnity for expense of exchanges; even if not equal debts – only up to concurring amount 2. Conventional – agreement of parties is enough, forget other requirement as long as both consented 3. Facultative – one party has choice of claiming/opposing one who has benefit of period may choose to compensate: * Not all requisites are present * Depositum; commodatum; criminal offense; claim for future support; taxes 4. Judicial – set off; upon order of the court; must be pleaded; all requirements must concur except liquidation 5. Total – if both obligations are completely extinguished because they are of the same or equal amounts. 6. Partial – when a balance remains (hence, there is a partial compensation in the larger of the two debts).

Question 49

- extinguishment of obligation by creating/ substituting a new one in its place either by: 1. Changing object or principal conditions 2. Substituting person of debtor 3. Subrogating 3rd person in right of creditor

Answer 49

NOVATION

Question 50

NOVATION REQUISITES:

Answer 50

1. Valid obligation 2. Intent to extinguish old obligation 3. Capacity and consent of parties to the new obligation 4. Valid new obligation

Question 51

Kinds of Novation

Answer 51

1. REAL / OBJECTIVE – change object, cause/consideration or principal condition 2. PERSONAL / SUBJECTIVE * Substituting person of debtor (passive) *Subrogating 3rd person in rights of creditor (active)

Question 52

PERSONAL/ SUBJECTIVE NOVATION REQUISITES

Answer 52

REQUISITES: a) Initiative from 3rd person b) New debtor and creditor must consent c) The old debtor must be excused or released from his obligation [NOTE: The old debtor’s consent or knowledge is not required.)

Question 53

Substituting person of debtor (passive)

Answer 53

PERSONAL / SUBJECTIVE

Question 54

a method of novation caused by the replacement of the old debtor by a new debtor, who (the old debtor) has proposed him to the creditor, and which replacement has been agreed to by said creditor and by said new debtor.

Answer 54

- DELEGACION

Question 55

* Subrogating 3rd person to rights of creditor (active)

Answer 55

PERSONAL / SUBJECTIVE

Question 56

agreement and consent of all parties; clearly established

Answer 56

1. Conventional

Question 57

takes place by operation of law; no need for consent; not presumed except as provided for in law:

Answer 57

2. Legal

Question 58

2. Legal - takes place by operation of law; no need for consent; not presumed except as provided for in law: PRESUMED WHEN

Answer 58

* Creditor pays another preferred creditor even w/o debtor’s knowledge * 3rd person not interested in obligation pays w/ approval of debtor * Person interested in fulfillment of obligation pays debt even w/o knowledge of debtor