Chapter 4: Extinguishment of Obligations PDF

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EXTINGUISHMENT OF OBLIGATIONS - CIVIL LAW CHAPTER PAYMENT OR PERFORMANCE Meaning of Payment General Rule [Art. 1233] Burden of Proving the Payment Who can pay Examples Where to pay When to pay Special Forms of Payment Application of Payment Payment by Cession Dation in Payment Tender of Payment and ...

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CIVIL LAW CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS

PAYMENT OR PERFORMANCE Meaning of Payment General Rule [Art. 1233] Burden of Proving the Payment Who can pay Examples Where to pay When to pay Special Forms of Payment Application of Payment Payment by Cession Dation in Payment Tender of Payment and Consignation

2 2 2 2 3 4 5 5 5 5 7 7 7

LOSS OF THING DUE

10

CONDONATION OR REMISSION

11

CONFUSION OR MERGER OF RIGHTS

12

COMPENSATION

13

NOVATION

14

PAYMENT OR PERFORMANCE

ART.

Obligations

1231.

are

Meaning of Payment

extinguished: 1.

↳

By payment or performance

money

2. By the loss of the thing due 3. By

the

condonation

or

remission of the debt

rights

of

creditor

↳

Legal Parlance: = delivery of money

or an object or to do or not to do an

4. By the confusion or merger of the

Common Parlance delivery of only

act

and

debtor

Note: payment and performance are

5. By compensation

synonymous

6. By novation General Rule [Art. 1233] Other causes of extinguishment of obligations,

such

as

annulment,

●

and

prescription,

governed elsewhere in this Code.

are

not

extinguish

the

obligation unless complete

rescission, fulfillment of a resolutory condition,

Will

●

Exception: a. substantial performance with good faith [Art. 1234] b. creditor

acceptance

[Art. 1235]

Burden of Proving the Payment

↳

Falls on the debtor to prove with legal certainty that the obligation has been discharged

↳

Burden shifts to the creditor when evidence is provided by the debtor

ART. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

Who can pay ●

A valid payment (cannot be refused by creditor) is paid by: ○

Debtor

○

Authorized Agent

○

Successor in Interest (usually when debtor becomes deceased)

Note: if a creditor refuses to accept a valid payment, they are now liable for mora accipendi

●

But can also be paid by a third person who is: ○

Interested in the fulfillment of the obligation a. Guarantors b. Surties c. Preferred Creditors d. Owners of Securities

○

Not interested in the fulfillment of the obligation [Art. 1236]

○

Not expecting to be reimbursed [Art. 1238]

Examples

Scenario 1. Interested in fulfillment

Scenario 2. NOT Interested in fulfillment

D is indebted to C for P1 million. As

D is indebted to C for P1 million. As

security, D pledged his car. Furthermore.

security, D pledged his car. 2 months

G guaranteed the debt. Before the debt

before the debt matures, D paid P100k

matures, G presented payment of P1

to C which the latter accepted. 1 month

million to C.

before the debt matures, X presented payment of P1 million to C. D consented

C, the third person guarantor is now

to the third person paying.

subrogated to the rights of the creditor because D is now indebted to C for

How

much

can

reimbursement of the P1 million.

reimburse from D?

X

(third-person)

Answer: P1 million, because D consented

Scenario 3. Does not intend to be

Scenario 2.1 NOT Interested in

reimbursed given scenario 2

fulfillment but without consent from the debtor

●

C can refuse the payment of X

●

Payment is deemed a donation if D

How

consents

reimburse from D?

If D does not consent:

Answer: Only P900k, because D DID NOT

●

○

○

reimburse

X

can

X

(third-person)

for

consent, however, still benefited from

P900k (what’s beneficial to

the payment P900k (third-person payment is

debtor)

still considered valid due to the acceptance of the

D

can

much

X still is not subrogated to the C’s rights (because no intention for reimbursement)

creditor)

↳

D still has the right to reimburse

P100k from C who received over P1 million

Where to pay

General Rule stipulation of parties Obligation to give a specific thing

Place of obligation’s constitution

Other types of obligation

Domicile of the debtor

If no stipulation (+- personal, generic thing)

When to pay ●

Payments must be made when the obligation is due and demandable

●

The debtor may pay before due date if the period is for the benefit of the debtor

ART. 1252. He who has various debts

Special Forms of Payment

of the same kind in favor of one and a. Application of Payment

the same creditor may declare at the time of making the payment, to which of them the same must be applied.

Unless

the

parties

so

stipulate, or when the application of payment is made by the party for whose benefit the term has been

↳

Requisites: a. At least 2 debts are due b. 1 debtor & 1 creditor c. Obligation is already due d. Payment cannot cover all debts e. Debts due are of the same kind

constituted, the application shall not be made as to debts which are not yet due.

General Rule [Art. 1233] ●

Will not extinguish the obligation unless complete

If

the

creditor

debtor a

accepts

receipt

in

from

the

which

an

application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.

●

Exception: c. substantial

performance

with good faith [Art. 1234] d. creditor 1235]

acceptance

[Art.

Ex. D is indebted to C. Assuming on July 14, D is ready to pay but only up to P20,000. Below are the debts of D to C with their respective due dates:

June 30 - P10,000 July 5 - to give a specific cat July 8 - P12,000 July 12 - P8,000 with 12% annual interest July 13 - P15,000 secured by chattel mortgage July 15 - P9,000

Obligations not included for application of payment:

July 15: not yet due given D is ready to pay on July 14 July 5: not of the same kind due to being a determinate thing

Application is to be made on the most burdensome debts if creditor and debtor don’t decide. In this case, it is July 12 and July 13 due to annual interest and chattel mortgage, respectively. The P20,000 will be distributed among the two debts proportionately.

Debt Payment

Outstanding (still have to pay)

July 12

July 13

= P20,000 x [8,000/

= P20,000 x [15,000/

(8,000 + 15,000)

(8,000 + 15,000)

= 6,957

= 13,043

= P8,000 - 6,957

= P8,000 - 6,957

= 1,043

= 1,957

ART. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is a stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the eect of the cession, are made between the debtor and his creditors shall be governed by special laws.

Payment by Cession

1.

Insolvent debtor

Dation in Payment

1.

Debtor may or may not be insolvent

2. At least 2 creditors

2. Can be one creditor

3. Aects all of the debtor’s properties

3. Aects only specific property

4. ONLY right to sell passes to the

4. Ownership passes to the creditor

creditor (creditor does not become owner of property/s) 5. The obligation is extinguished up to

5. Obligation is fully extinguished regardless of the existence of deficiency in the proceeds from the

the extent of the proceeds from the

property. Furthermore, the creditor is

properties (not extinguished if the

not required to sell the property

value of properties is insucient; there is still debt)

Tender of Payment and Consignation ●

Tender of Payment

↳

Act of a debtor oering a creditor a thing or amount due in compliance with an

obligation. In this section, tender of payment is valid if you are “tendering” a legal tender: ○

A legal tender refers to bills or coins issued by BSP (Bangko Sentral ng Pilipinas) a. Bills - legal tender as to any amount of debt b. Coins (P1, P5, P10) - legal tender up to P1,000 c. Coins (centavos) - legal tender up to P100

Note: Checks are not considered legal tenders as it is not issued by BSP

ART. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof.

●

Consignation

↳

After tender of payment, it is the judicial act of depositing the thing or amount due

with the proper court when the creditor: a. does not desire b. refuses to accept payment c. cannot receive it

Note: Consignation is a facultative remedy – a remedy a debtor may or may not opt for

●

Requisites a. Debt is already due b. Tender of payment made but creditor refuses to accept payment without valid cause c. Notice of consignation to interested persons is given [Art. 1256] d. Actual consignation of the sum due [Art. 1258] e. Notice to the interested person that consignation was Made must be given [Art. 1258]

●

General Rule ○

Tender of payment is needed for consignation unless the following exceptions are presented [Art. 1256] a. Creditor is absent, unknown, or does not appear in the place of payment b. Creditor is incapacitated to receive payment when it is due c. Without just cause, a creditor refuses to give a receipt d. At least two people claim the same right to collect e. Title of obligation has been lost

LOSS OF THING DUE

●

Right of creditor to be surrogates to the right of debtor against third persons who caused the fortuitous loss

CONDONATION OR REMISSION

●

Form of gratuitous donation

●

Must be accepted by debtor

●

Must not be inocious to deprive creditor’s compulsory heirs of their inheritance

●

Obligation must be due and demandable

●

Must conform with forms/ rules of donation

●

Must be reflected in a public document to be valid

Note: it is possible for an obligation to be under 2 or more classifications, however there are some that can only have one

CONFUSION OR MERGER OF RIGHTS

●

Creditor and debtor become one person

●

Ex. If A is obligated in the amount of 10k to B. B is obligated to pay C 10k. C is obligated to A 10k. All of them can be considered creditors and debtors of each other. Kind of like cancellation in algebra. -10k + 10k is just 0 so there would be no need to fulfill the obligation, therefore, it is extinguished.

Principal obligation is an obligation that can stand on its own. Does not need other obligations in order to be valid

Ex. If Caraan loans P1 million from you

COMPENSATION

Meaning of Compensation

↳

Ex. D is indebted to C for P10k. G is the

Takes place when ONLY 2 persons in

guarantor. Assuming C is indebted to G

their own right, are creditors and debtors

for P9k, is there a legal compensation

of each other

between G and C?

↳

Requisites: 1.

One of the debtors is principally bound and a principal creditor of the other

2. The due thing must be of the same kind 3. 2 debts are due 4. That

they

are

liquidated

and

Answer: No, because G is only subsidiarily liable

to

(directly)

C.

G

liable

compensation.

must to

be C

principally for

legal

demandable 5. No retention and controversy

Note: In compensation, there shall be an indemnity for transportation expenses if there is a need to go to the place of payment [Art. 1285]

Kinds of compensation ●

Voluntary/ Conventional ○

When compensation takes place mutually agreed upon (even despite not being due yet)

●

Legal ○

Mandated by law

○

Ex. Contract of agency: when a principal has appointed an agent with transactions with third persons. Agents are usually entitled to compensation. After the record accounting if the agency transactions made by the agent. The principal need not collect the 100k.

●

Judicial ○

●

Dictated by courts of justice after due process and hearing of particular case

Facultative ○

Can only be set up by one of the parties

○

One of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum [Art. 1287]

Ex. Deposit: D is obliged to give C a bag.

Ex. Commodatum: D is obliged to give C a

D left a bag at C’s house.

watch. D lent C a watch.

Can C compel D to give him the bag left at his house/ loaned watch, as compensation for what D is liable to deliver to him?

Answer: No for both, because C requires the consent of D, the debtor.

If D consents to this, then compensation is allowed.

○

Up against a creditor who has a claim of support due by gratuitous title [Art. 1287]

Ex. C is the ex-wife of. D. D was ordered by the court to give monthly support of P50,000 to C for their children. C is indebted to D for P50,000. Assume both D and C’s debts are due. Who may compel for compensation?

Answer: C, because Article 1287 states that the creditor has the power to compel in obligations due by a gratuitous title. D has no power to compel as he is the debtor.

○

One of the debts consists in civil liability from a penal oense [Art. 1288]

Ex. D is indebted to C for P100,000. C attempted to kill D for P50,000. Because of the shock, D was awarded P100,000 damages by the court. C was also criminally prosecuted. Who may compel for compensation?

Answer: D, the oendee, may compel when it involves a penal oense such as attempted murder. C, the oender, cannot compel. [Art. 1288]

How it’s Assigned With debtor’s consent and

Extent of Compensation Can setup compensation as to any debts due

reservation With debtor’s consent and

Cannot setup compensation as to any debts due

without reservation Without debtor’s consent

Can setup compensation as to any debts due prior to assignment

Without debtor’s knowledge

Can setup compensation as to any debts due prior to debtor gaining knowledge of assignment

NOVATION

●

Meaning of Novation ○

Total or partial extinguishment of an obligation by modifying the following aspects of an existing obligation

General Rule: Old obligation is extinguished and replaced by the new one stipulated

New obligation is void

Original obligation is void

Original shall subsist

Novation is void if the original is void or voidable, eective if the contract is ratified before novation or annulment can only be claimed by the debtor. [Art. 1298]

●

Kinds of Novation ○

Changing the object or principal conditions (real or objective notation) ■

I delivered a determinate car (principal object) because you were paid a purchase price of 5 million pesos. We agreed to modify the terms and conditions of the obligations. You will still have to pay me 5 million pesos but I will buy you a

determinate but dierent car. Same model but dierent plate number. It is considered extinguished because the original obligation was extinguished to be substituted by a new one. ○

Personal or subjective novation on the part of the debtor ■

There is a substitution of a PARTY to an obligation

■

Ex. D agreed to deliver a determinate car to C. Instead of A delivering, X will deliver the car to C in place of D. X is the subrogated third-person debtor.

○

Mixed or Eclectic Novation ■

Combination of real and personal novation

■

Modified to create a new obligation where real and personal obligations are mixed

Dacion en Pago

Payment by Cession

(money debt property)

A debtor

who is in a state of

bankruptcy or insolvency abandons all Presupposed obligation the fact that

remaining

properties

to

the

there is a pre-existing pre-obligation

creditor/ creditors to sell. This shall

to pay in terms of money

serve as a substitute form of payment of the insolvent debtor

Will simply deliver

or alienate an

(debt sale proceeds)

equivalent property that will serve as a substitute form of payment for that pre-existing

monetary

obligation

in

favor of the creditor

Tender of Payment and Consignation

Application of Payments

tender = oer

1:1 debtor and creditor

creditor refusal witho...