Obligations and Contracts: Extinguishment of Obligations

Comprehensive vocabulary flashcards covering the extinguishment of obligations, including payment rules, special forms of payment, inflation doctrines, pactum commissorium, consignation, and loss or impossibility of performance.

Article 1427 of the Civil Code

A provision establishing that if a minor, without parental or guardian knowledge, voluntarily pays money or delivers a fungible thing in fulfillment of an obligation, there is no right of recovery if the creditor spent or consumed it in good faith.

Ward

A minor or an individual of legal age who has a mental disposition, represented by a guardian authorized to receive payment on their behalf.

Subrogation (in Payment to a Third Person)

The acquisition of the creditor's rights by a third person who pays the creditor with the consent of the debtor, rendering the payment valid without the need to prove that it redounded to the creditor's benefit.

Ratification (in Payment to a Third Person)

The express or implied act of the creditor acknowledging or approving an unauthorized payment made by the debtor to a third person, which validates the payment without requiring proof of benefit.

Estoppel

A legal principle where an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

Bearer Instrument

A negotiable instrument wherein anyone who holds it has the right to enforce or collect the amount indicated from the maker or indorsers; payment made in good faith to the possessor releases the debtor.

Garnishment

A judicial order directing a debtor's debtor to retain the debt in the meantime and refrain from paying the creditor; any payment made by the debtor after being judicially ordered to retain the debt is invalid.

Rule on Identity of Prestation

The principle that the debtor cannot compel the creditor to receive a thing different from that which is due, even if the offered substitute is of the same value or more valuable than the agreed prestation.

Extraordinary Inflation

An unusual decrease in the purchasing power of the currency beyond the common fluctuation, which could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time the obligation was established.

Extraordinary Deflation

An unusual increase in the purchasing power of the currency beyond common fluctuation that could not have been reasonably foreseen or contemplated by the parties at the establishment of the obligation.

Telengtan Brothers & Sons, Inc. v. United States Lines

The Supreme Court ruling establishing that in the absence of an official pronouncement or declaration by competent authorities of the existence of extraordinary inflation, its legal effects cannot be applied.

Article 1250 of the Civil Code

The statutory rule providing that in cases of extraordinary inflation or deflation, the basis of payment shall be the value of the currency at the time of the establishment of the obligation, unless there is an agreement to the contrary.

Dation in Payment (Dacion en Pago)

A special form of payment whereby property is alienated by the debtor to the creditor to satisfy a monetary debt, partaking in the nature of a contract of sale that requires consent, an object certain, and cause or consideration.

Pactum Commissorium

A prohibited and null-and-void stipulation under Article 2088 of the Civil Code allowing the automatic appropriation by the creditor of the thing pledged or mortgaged upon the debtor's failure to pay the principal obligation within the stipulated period.

Application of Payments

The designation of the particular debt to which a payment shall be applied when the debtor has several obligations of the same kind in favor of one and the same creditor.

Article 1253 of the Civil Code

The legal rule providing that if an interest-bearing debt produces interest, payment of the principal shall not be deemed to have been made until the accrued interest has been completely covered first.

Rule on Most Onerous Debt

The rule in application of payments providing that when debts are of different burdens and no specific application was made, the payment is deemed applied to the debt that is most burdensome to the debtor (such as one secured by a mortgage).

Proportionate Application of Payment

The rule providing that when multiple due debts share the exact same burden and no designation is made by the parties, the debtor's payment shall be applied proportionately across all the debts.

Payment by Cession

A special form of payment wherein an insolvent debtor assigns or abandons all of their properties to two or more creditors so that the properties may be sold and the proceeds applied toward the satisfaction of their claims.

Tender of Payment

The preparatory act of the debtor of offering to the creditor the full amount or thing due, which does not by itself extinguish the obligation unless followed by consignation.

Consignation

The act of depositing the thing or amount due with the proper court whenever the creditor refuses to accept it without just cause or under circumstances where the creditor cannot accept it.

Two-Notice Requirement in Consignation

The mandatory procedure requiring the debtor to notify all interested parties both prior to consignation to announce the deposit, and after consignation has been made to allow the creditor to withdraw the deposit.

Banco Filipino Savings and Mortgage Bank v. Antonio G. Diaz

The ruling clarifying that a debtor may withdraw consignation as a matter of right before acceptance or judicial approval; after acceptance or approval, withdrawal requires creditor consent and revives the obligation while extinguishing guarantees and preferences.

Loss of a Determinate Thing

A ground for extinguishment under Article 1189(2) when a specific thing perishes, goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered.

Genus Nunquam Perit

A legal maxim meaning 'generic thing never perishes,' establishing that the loss of a generic prestation does not extinguish an obligation because it can be replaced by another of the same class.

Presumption of Fault in Loss of the Thing

The disputable legal presumption that the debtor is at fault whenever the thing due is lost or destroyed while still in their possession, except in cases of earthquake, flood, storm, or another natural calamity.

Legal Impossibility

An impossibility of performance in an obligation to do that supervenes without the obligor's fault as a direct consequence of a change in the law, such as state expropriation under eminent domain.

Physical Impossibility

An impossibility of performance in personal obligations to do arising principally from the death of the obligor, or the death of the obligee when the act can be of benefit only to them.

Doctrine of Unforeseen Events (Manifest Difficulty)

The principle releasing an obligor in whole or in part from an obligation to do when an unforeseen event renders the prestation extremely difficult and manifestly beyond the contemplation of the parties.

Tagaytay Realty Co., Inc. v. Gacutan

The jurisprudence establishing that mere inconvenience, unexpected impediments, increased expenses, or pecuniary inability do not relieve an obligor from an undertaking knowingly and freely contracted.

Article 1269 of the Civil Code

The provision conferring upon the creditor, by operation of law without needing a deed of assignment, all rights and actions that the debtor may have against third persons by reason of the loss of the thing.