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DE OCAMPO, James P.

BSA31KB2

Extinguishment of Obligation Art. 1231. Obligations are extinguished:


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Section I. Payment or Performance


Payment not only the delivery of money but includes the performance of an obligation in any other manner. In law, payment and performance are synonymous. According to the general rule partial or irregular performance will not produce the extinguishment of an obligation. Exception to the general rule: If substantially performed in good faith. The obligor is allowed is allowed to recover the payment less the damages suffered by the obligee. Obligee accepts the performance, knowing its incompleteness or irregularity. The obligor is not liable for damages, because the obligation is deemed fully complied. Payment of third person Payment or performance by any person not incapacitated is recognized. Even has no interest in the obligation If made without the knowledge or against the will of the debtor he can recover only upto the amount the debtor has benefited. If made with the knowledge of the debtor he shall have the rights of reimbursement and subrogation. Subrogation and reimbursement distinguished Subrogation - the payor acquires all the rights which the creditor could have exercised pertaining to the credit. Reimbursement can recover only up to amount the debtor benefited. Validity of Payment to an Incapacitated Person is not valid unless the person kept the thing paid or delivered, or was benefited by the payment. Ex: Mary is indebted to Claire, a minor, in the amount of P200. On maturity of the debt, Mary pays Claire P200. Claire deposits the amount to the bank; she does not spend it. The payment is valid. Payment to a Third Person in Possession of Credit if made in good faith shall release the debtor. Ex: Mary executed a negotiable promissory note for P10,000 in favor of Claire. On maturity date, Carla, a third person, presented the note, properly indorsed, and demanded payment of the same. The payment released her, because she paid in good faith to a person in possession of the credit whom the law presumes to be the owner of the note properly indorsed.

Special Forms of Payment:

DE OCAMPO, James P. BSA31KB2 Dation in Payment Conveyance of ownership of a thing as an accepted equivalent of performance. Debtor alienates property in payment of a debt in money. The creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. Application of Payment Designation of debt when there are several debts to a creditor. Principally, it is the debtor who can make an application of payment. Failure of the debtor to make an application automatically allows the creditor to make an application. If both parties fail to make an application, the More Burdensome Rule will apply. Payment must be applied first to the interest and whatever balance is left can be credited to the principal. Payment by Cession Debtor abandons property in favor of the creditor so that the latter may dispose of the property in order to apply the same to the debts, Voluntary Cession requires the consent of all the creditors Ex: Pnoy is indebted to Pablo, Diego and Juan in the amount of P10,000. He has more debts than assets. because Pnoy cannot pay them all in full amount, Pnoy may assign to Pablo, Diego, and Juan his properties valued at P6,000 so they can sell the same and the net proceeds applied in payment of his debt. Tender of Payment and Consignation Tender of payment is an act on the part of the debtor to offer to the creditor the thing or amount due. Consignation is the act of depositing the thing due or placing the same under judicial authority when the creditor refuses to accept payment without just cause. Ex: Billy was indebted to Vhong. On maturity of the obligation, Billy offered to pay Vhong the amount of the debt but without justified reason refused to accept the payment. Billy then notified Vhong, thus if Vhong persist in not accepting the payment, Billy will go to the proper court. Proved to the court that there was a valid tender of payment and that, Vhong, the creditor, unjustly refused to accept the payment and that, there was previous notice consignation. The clerk accepted the payment.

Section II. Loss of the Thing Due


The thing is considered lost when it perishes, or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered. As a rule, the loss of the thing extinguishes the obligation to give. This is equivalent to impossibility of obligations to do. Impossibility of Performance Physical Impossibility Ex: Ely obliged himself to make a statue of Raimund. After the obligation was constituted, Elys hands were amputated by reason of an accident. Because Elys obligation cannot be performed, his obligation to Raimund is thereby extinguished. Legal Impossibility

DE OCAMPO, James P. BSA31KB2 Ex: Marcus agreed to construct a commercial building for Buddy. The government refused to sign a building permit because the area has been declared as a residential zone. The obligation therefore was extinguished. Loss of a Generic Thing Debtor can still be compelled to deliver a thing of a same kind. Ex: Herbert obliges himself to deliver to Joseph a cow. The cow which Herbert intended to deliver to Joseph died of sickness. In this case, Herberts obligation to deliver a cow is not extinguished because a cow is generic, he is still obliged to deliver any of the species. Loss of a Specific Thing If the loss is due to fortuitous event: a. Due to the fault of the debtor not extinguished b. Not due to the fault of the debtor - extinguished Ex: Herbert obliges himself to deliver to Joseph his dog named Labuyo. Before the agreed date of delivery, Labuyo dies without Herberts fault. In such case, the obligation is extinguished.

Section III. Condonation or Remission of Debt


Gratuitous abandonment by the creditor of his right against the debtor. Kinds of remission Complete Remission Ex: Habagat was indebted to Maring in the of P1,000. On the due date of the obligation, Habagat, offered to pay his debt to Maring but the latter told Habagat that he was renouncing his right to collect the debt as he won in the sweepstakes. Partial Remission Ex: In the same example above, suppose Habagat offered to pay the whole amount of P1,000 to Maring but latter accepted on P500 and renounced the balance. Inofficious remission -No one can give more than that which he can give by will, otherwise, the excess shall be inofficious. Ex: A, a widower, died survived by his only heir, B, his son. In his last will and testament, A renounced a debt due him from X, in the amount of P50,000. The debt constituted his only estate. Since A could only dispose of one-half of his estate as the other half belong to his heir, B, as his legitimate child, the renunciation was inofficious and should be reduced. Case Document found in Possession of Debtor -Ordinarily, the document evidencing the debt is in the possession of the creditor. If later the document is found in the hand of the debtor, the presumption is that it was voluntarily delivered by the creditor. Ex: Habagat owes Maring P2,000 evidenced by promissory note. Later on, the promissory note was found in possession of Habagat. The presumption of law is that the obligation has been remitted by Maring.

Section IV. Confusion or Merger of Rights


The characters of debtor and creditor meet in one and the same person with respect to the same obligation.

DE OCAMPO, James P. BSA31KB2 Confusion in a joint obligation What is extinguished is only the share of that debtor in the obligation. Ex: Gomez and Burgos are jointly indebted to Zamora in the amount of P1000. If merger of confusion takes place between Gomez and Zamora, the Gomezs obligation of P500 will be extinguished. However, the indebtedness of Burgos to Zamora will remain. Confusion in a solidary obligation The obligation is extinguished Ex: In the same example above, if the obligation of Gomez and Burgos is solidary, the indorsement to Gomez extinguishes the entire obligation of P1000. Gomez can demand reimbursement from Burgos.

Section V. - Compensation
Two persons or two parties are debtors and creditors of each other. Kinds of Compensation Legal by operation of law Conventional by agreement of the parties Facultative only one party can claim compensation Judicial declared by court Compensation in General Ex: Mario is indebted to Luigi in the amount of P100. On the other hand, Luigi is also indebted to Mario in the amount of P100. Both debts are due. Compensation will take place. Requisites of Compensation: Obligors must be bound principally Ex: Mario is indebted to Luigi in the amount of P100. In another obligation, Mario is the creditor of Princess in the amount of P100 with Luigi as guarantor. Compensation will not take place because Mario and Luigi are not bound principally to each other. Debt consist in a sum of money Ex: Mario owes Luigi the amount of P100. Luigi is under obligation to Mario to render his professional services. No compensation can take place because the second debt does not consist in a sum of money. Two debts be due Ex: Mario owed Luigi P100 payable on Sept. 1 2013. On the other hand, Luigi owed Mario also P100 due Sept. 15 2013. If on Sept 16 2013, both debts are still unpaid, then compensation can take place. No retention or controversy commenced by third person Ex: Mario is indebted to Luigi. Luigi is also indebted to Mario. Before both debts fall due, Princess secures an order from court notifying Mario not to pay Luigi as she (Princess) claims right to the said amount. Exception to the General Rule

DE OCAMPO, James P. BSA31KB2 The guarantor may set up by way of compensation what the creditor owes his principal debtor Total Compensation Ex: A owed B P1000 due on Sept 1 2013. But B also owed A P1000 due on the same date Partial Compensation Ex: A owed B P1000. But B only owes A P500, then partial payment took place, A is still liable to pay B P500

Meaning of Depositum Is a contract where one person receives a thing belonging to another, with the obligation of safe keeping it and of returning the same. Meaning of Commodatum Is a gratuitous contract where one of the parties to another, something not consumable so that the latter may use the same for a certain time and return it.

Section VI. Novation


Not an absolute mode of extinguishment, it is only relative because it plays a dual role. While it extinguishes an obligation, it also creates a new one. Novation may either be: Extinctive old obligation is extinguished and new one is created Modification no extinguishment of obligation. It simply modified the obligation Three ways by which novation may take place: Changing the object or any other principal conditions of the obligation Ex: S agreed to deliver B a television set. Later, they enter into another contract whereby, instead of delivering a television set, he will deliver air conditioner. The obligation to deliver a television set is extinguished, Substitution of the person of the debtor Expromision when a third person of his own accord and even without the knowledge of the original debtor assumes the obligation, with the consent of the creditor Delegacion when the debtor asks the creditor to accept a third person to take his place as obligor Subrogating a third person into the right of the creditor Conventional when it takes place by express agreement of the original parties and the third person Legal when it takes place without agreement but by operation of law Insolvency of the substitute Expromision the old obligation will not be revived Delegacion if at the time of substitution, the new debtor is already insolvent.