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Benitez
Law 111 C
Atty. Silvia Jo Sabio
Extinguishment of Obligations
Modes of Extinguishment
1. by payment or performance
2. by loss of the thing due
3. by condonation or remission
4. by confusion or merger of the rights of creditor and debtor
5. by compensation
6. by novation
Other Causes of Extinguishment
Mentioned in Art. 1231
1. Annulment
2. Rescission
3. Fulfillment of a resolutory condition
4. Prescription
Not mentioned in Art. 1231
5. Death of a party in case the obligation is a personal one
6. Mutual desistance or withdrawal
7. Arrival of resolutory period
8. Compromise
9. Impossibility of fulfillment
10. Happening of a fortuitous event
I. Payment or Performance
(a) Payment
(i) It is the complete delivery of money and performance of obligation
Requisites:
1. Persons, who may pay and to whom payment may be
made
2. the thing or object in which payment must consist
3. Manner, time and place of payment
(ii) When debt considered paid:
a. Integrity of the prestation prestation must be fulfilled
completely
b. Identity of the prestation - the very thing or service due must
be
delivered or performed
General rule: Partial or irregular performance will not produce the
extinguishment of an obligation
(iii) Recovery allowed in case of substantial performance in good faith
- there must have been an attempt in good faith to perform,
without any willful or intentional departure therefrom
(iv) Recovery allowed when incomplete or irregular performance
waived
- There must be an intentional relinquishment of a known right
(v) Third party cannot compel creditor to accept payment or
performance,
except when:
a. there is stipulation to the contrary
b. third person has an interest in the fulfillment of obligation
(vi) Persons from whom the creditor must accept payment:
a) The debtor
b) Any person who has an interest in the obligation (like a
guarantor)
c) A third person who has no interest in the obligation when
there is stipulation that he can make payment
(vii) Effect of payment by a third person:
i. If made without the knowledge or against the will of debtor:
- The payer can recover from the debtor only in so far as
the payment has been beneficial to the latter
- The third person is not subrogated to the rights of the
creditor, such as those arising from a mortgage,
guarantee, or penalty
ii. If made with the knowledge of debtor:
- The payer shall have the rights of reimbursement and
subrogation, that is, to recover what he has paid (not
necessarily the amount of the debt) and to acquire all
the rights of the creditor
(viii) To whom payment must be made:
a. To the person in whose favor obligation has been constituted
b. His Successor in interest
c. Any person authorized to receive it
d. Third person provided it has redounded to benefit of creditor
-
(f) If the new obligation is void, there is no novation, and the original
obligation
generally will subsist
(g) If original obligation is void, novation is void; except when annulment
may
be claimed only by debtor or when voidable acts have been ratified
(h) The conditions attached to the old obligation are also attached to the new
obligation except when there is a contrary stipulation
(i) Subrogation when a third person is subrogated in the rights of the
creditor
i. Conventional requires the consent or express agreement
of:
1. The debtor because he becomes liable under the new
obligation and because his old obligation
ends
2. The old creditor because his credit is affected
3. The new creditor because he becomes a party to the
obligation
ii. Legal Without agreement, by operation of law
1. When creditor pays another creditor who is preferred,
even without the debtors knowledge
2. When a third person, not interested in the obligation,
pays with the express or tacit approval of debtor
3. When a third person interested in the fulfillment of
obligation pays, even without the knowledge of
debtor
(j) Effect of legal subrogation
- to transfer to the new creditor the credit and all the rights and
actions that could have been exercised by the former creditor
either against the debtor or against third persons, be they
guarantors or mortgagors
(k) Effect of partial subrogation
- The creditor to whom partial payment has been made by the new
creditor remains a creditor to the extent of the balance of the
debt.