EXTINGUISHMENT OF OBLIGATIONS (GOLDEN NOTES)

Payment or Performance, Loss of Thing Due, Condonation or remission, Confusion or Merger of Rights, Compensation, Novation

Principal modes of extinguishment

Annulment, Rescission, Fulfillment, Prescription

Other modes of extinguishment

Death, Arrival of Resolutory Period, Change of Civil Status, Compromises, Mutual dissent, Impossibility of fulfillment, Fortuitous events

Other causes of extinguishment

Integrity, Identity, Indivisibility

Characteristics of payment

Integrity

The payment of the obligation must be completely madde

Identity

The payment of the obligation must consist in the performance of the very thing due

Indivisibility

The payment of the obligation must be in its entirety

Payment

Defined as not only the delivery of money but also the performance, in any other manner of an obligation, It is the satisfaction or fulfillment of a prestation that is due, resulting in the extinguishment of the obligation of the debtor.

(1) Substantial performance performed in good faith,(2) When the obligee accepts the performance knowing its incompleteness or irregularity and without expressing any protest or objection, (3) Debt is partly liquidated and partly unliquidated, but the liquidated part of the debt must be paid in full

Exceptions to the general rule that payment or performance must be complete

Substantial Performance Doctrine

If a good faith attempts to perform does not precisely meet the terms of an agreement or statutory requirements, the performance will still be considered complete if the essential purpose is accomplished

(1) Attempt in Good Faith to comply (2) Slight deviation from the obligation and the omission or defect of the performance is technical and unimportant, and does not pervade the whole or is not material

Requisites to substantial performance doctrine

Partial performance is agreed upon, part of the obligation is liquidated and part is unliquidated, to require the debtor in full is impractical

Exception to the indivisibility rule in payment

(1) The person who pays the debt must be the debtor (2) The person to whom payment is made must be the creditor (3)The thing to be paid or to be delivered must be the precise thing or the thing required to be delivered by the creditor (4) The manner (if expressly agreed upon) time and place of payment (5) Acceptance by the creditor

Requisites of a valid payment

Normal (voluntary) Abnormal (forced)

Kinds of Payment

Debtor, his heirs anda assigns, agents and representatives, third person who have a material interest in the fulfillment of the obligation

Persons who may pay and compel the creditor to accept the payment

Can recover the entire amount, can be subrogated to all rights of the creditor

If the payment was made with the knowledge and consent of the debtor

Third person can recover only insofar as payment has been beneficial to the debtor

Without the consent of the debtor

Not valid

Payment to an unauthorized person

He kept the thing delivered, It has been beneficial to him

Payment to an incapacitated person is valid if

After the payment, the third person acquires the creditor’s rights, the creditor ratifies the payment to the third person, if the debtor has been led to believe that the third person had authority to receive payment

Payment to a third person as it redounded to the benefit of the creditor is valid if

Payment in good faith to the possessor of credit

Valid payment to an unauthorized person

Dacion en Pago

Alienation by the debtor of a particular property in favor of his creditor, with the latter’s consent, for the satisfaction of the former’s money obligation to the latter, with the effect of extinguishing the said money obligation.

Application of Payment

Designation of the particular debt being paid by the debtor who has two or more debts or obligations of the same kind in favor of the same creditor to whom the payment is made.

Payment by cession

Debtor cedes his property to his creditors so the latter may sell the same and the proceeds realized applied to the debts of the debtor.

Tender of payment

Voluntary act of the debtor whereby he offers to the creditor for acceptance the immediate performance of the former’s obligation to the latter.

Consignation

Act of depositing the object of the obligation with the court or competent authority after the creditor has unjustifiably refused to accept the same or is not in a position to accept it due to certain reasons or circumstances.

Existence of a money obligation, alienation to the creditor of a property by the debtor, satisfaction of the money obligation of the debtor

Requisites of dacion en pago

The document has been encashed or it has been impaired through the fault of the creditor

When is payment in check/other negotiable instruments considered valid payment

One peso, five peso and 10 peso coins in amount not exceeding 1,000 and 25 centavos or less in an amount not exceeding 100

Amount of coins that may be accepted as legal tender

(1) There was an official declaration of extraordinary inflation or deflation by BSP, (2) That the obligation was contractual in nature (3) That the parties expressly agreed to consider the effects of the extraordinary inflation

Requisites of Article 1250

(1) There is only one debtor and creditor (2) The debtor owes two or more debts (3) Debts are of the same kind (4) All debts are due and demandable (5) The payment made is not sufficient to cover all obligations

Requisites of application of payment

Plurality of debts, Partial or relative insolvency of the debtor, acceptance of the cession by the creditors

Requisites of cession

Disappears, Out of Commerce, Perishes, Existence is unknown

When a thing is considered lost

Law provides, Assumption of Risk, Stipulation, Debtor contributed to loss, debtor in delay, debtor promised the same thing to two people, proceeds from a criminal offense, when the obligation is generic

Obligation is not extinguished @ loss of thing due when

Condonation or Remission

An act of liberality by virtue of which the creditor, 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 same to which the condonation or remission refers

Must be gratuitous, acceptance by debtor, must not be inofficious, formalities provided by law on donation is complied with, an existing demandable debt

Requisites of condonation

Confusion

when there is a meeting in one person of the qualities of a creditor and debtor of the same obligation.

Takes place between creditor and principal debtor, the very same obligation must be involved, the confusion must be total or as regards with the entire obligation

Requisites of confusion.

Compensation

It is a mode of extinguishing obligations that take place when two persons, in their own right, are creditors and debtors of each other. It is the offsetting of the respective obligation of two persons who stand as principal creditors and debtors of each other, with the effect of extinguishing their obligations to their concurrent.

(1) Each one of the obligors must be bound principally,(2) both debts consist in sum of money (3) both debts are due (4) both debts are liquidated and demandable (5) Neither debt must be retained in a controversy commenced by third person and communicated in due time to the debtor (6) Compensation must not be prohibited by law

Requisites of compensation

Effects of compensation

Both debts are extinguished, interests stop accruing on the extinguished, the period of prescription stops, all accessory obligations are also extinguished

Novation

It is the substitution or change of an obligation by another, resulting in its extinguishment or modification, either by changing the object or principal conditions, or by substituting another in the place of the debtor or by subrogating a third person to the rights of the creditor.

Subsequent Void Obligation

intended to novate an old one has no legal effect and is considered as if the parties have not agreed upon it in the first place. The original obligation shall subsist.

Express Novation

Takes place only when the intention to effect a novation clearly results from the terms of the agreement or is shown by a full discharge of the original debt.

Implied novation

necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first.

(1) Valid old obligation (2) Intent to extinguish old obligation (5) Capacity and consent of all parties to the new obligation (4) Substantial difference between the old and new obligation (5)Valid new obligation

Requisites of novation

Objective or Real Novation

Changing the object or principal conditions of the obligation

Subjective or Personal novation

Change of the parties.

Delegacion

The substitution is initiated by the old debtor himself (delegante) by convincing another person (delegado) to take his place and to pay his obligation to the creditor.;

Expromission

The substitution of the old debtor by a new debtor is upon the initiative or proposal of a third person

Mixed

when the change of the object or principal conditions of an obligation occurs at the same time with the change of either person of the debtor or creditor

Requisites of Delegacion

(1) Substitution upon the initiative or proposal of the old debtor, (2) The creditor accepts and the new debtor agrees (3) The old debtor is released from the obligation with the consent of the creditor

Requisites of Expromission

(1) Substitution is upon the initiayive of a third person, (2) Creditor must give his consent to the proposal of the third person (3) Old debtor must be released from the obligation with the consent of creditor

Subrogation

It is the active subjective novation characterized by the transfer to a third person of all rights appertaining to the creditor in the transaction concerned including the right to proceed against the guarantors or possessors of mortgages and similar others subject to any applicable legal provision or any stipulation agreed upon by the parties in conventional subrogation.