Extinguishment of Obligations PDF

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Warning: TT: undefined function: 32 Warning: TT: undefined function: 32 Chapter 4 – EXTINGUISHMENT OF OBLIGATIONSGeneral Provisions.Art. 1231 – Causes of Extinguishment of Obligationsi. Payment/performance ii. Loss of the thing due iii. Condonation/remission of the debt iv. Confusion/merger of the r...

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Chapter 4 – EXTINGUISHMENT OF OBLIGATIONS

General Provisions. Art. 1231 – Causes of Extinguishment of Obligations i. ii. iii. iv. v. vi.

Payment/performance Loss of the thing due Condonation/remission of the debt Confusion/merger of the rights of creditor & debtor Compensation Novation

Other causes: annulment, rescission, fulfillment of resolutory condition & prescription

Section 1. – Payment or Performance. Art. 1232 – Meaning of Payment • • • •

Delivery of money Giving a thing Doing an act Not doing an act

Art. 1233 – When Debt is Considered Paid i.

ii.

Integrity of prestation – thing delivered/service rendered not paid unless completely delivered/rendered Identity of the prestation – the very prestation due must be delivered/performed

Art. 1234 – Recovery Allowed in Case of Substantial Performance in Good Faith; Requisites for Application of Art. 1234 i. ii.

Must be substantial performance Obligor is in good faith

Art. 1235 – Recovery Allowed When Incomplete or Irregular Performance Is Waived; Requisites for the Application of Art. 1235 i. ii.

General rule: Payment incomplete, creditor may reject In case of acceptance, obligation extinguished

Requisites: i. ii.

Obligee knows performance is incomplete/irregular (consent) He accepts w/o protest or objection (acceptance)

Art. 1236 – Persons from Whom the Creditor Must Accept Payment; Creditor May Refuse Payment by a Third Person; effect of payment by 3rd person i. ii. iii.

Debtor 3rd person w/ interest in obligation 3rd person w/ no interest, but when stipulated he can pay

Creditor refuse payment by 3rd person: • •

•

3rd person whom he dislikes/distrust For perso reasons, may not want to have any business dealings w/ 3rd person May not have confidence in the honesty of 3rd person

Effect of payment by 3rd person: i.

ii.

If made w/o knowledge/against will of debtor. – recovery up to the extent/amount of debt at time of payment If made w/ knowledge of debtor. – payor have rights of reimbursement & subrogation

Art. 1237 – Right of 3rd Person to Subrogation; Subrogation and Reimbursement Distinguished • •

3rd pay on behalf of debtor, w/ consent, is entitled to subrogation If not, 3rd person can’t compel creditor to subrogate his rights

Subrogation & Reimbursement: i.

ii.

Subrogation – payor has acquired right to be reimbursed and all other rights to credit against debtor/3rd person (guarantor etc.) Reimbursement – 3rd person has right to be refunded rd

Art. 1238 – Payment by a 3 Person Who Does Not Intend to be Reimbursed “no one should be compelled to accept the generosity of another.” •

3rd person doesn’t intend to be reimburse: Payment is considered a donation, valid w/ debtor’s consent

Art. 1239 – Meaning of “free disposal of thing due” and “capacity to alienate”; free disposal of thing due and capacity to alienate required i.

ii.

Free disposal of the thing due – thing to be delivered must not be subject to any claim/lien/encumbrance of a 3rd person (mortgage, pledge, etc.) Capacity to alienate – person not incapacitated to enter contracts, and for that matter, to make a disposition of thing due

General Rule: •

Obligation to give. Payment by one who doesn’t have free disposal of thing due & not have capacity to alienate is not valid

Art. 1240 – person to whom payment shall be made; meaning of any “any person authorized to receive it” i. ii. iii.

Creditor Successor in interest 3rd person authorize to receive

3rd person authorized: • •

By creditor By law (guardian, executor or administrator of estate of deceased, assignee, liquidator of partnership)

Art. 1241 – effect of payment to an incapacitated person; effect of payment to 3rd person; when benefit by creditor need not be proved by debtor Payment to incapacitated creditor: •

•

NOT VALID unless: i. Kept the thing paid/delivered ii. Payment benefited him Absence of benefit: i. Debtor pay again to creditor’s guardian ii. Pay again to creditor after recovery of capacity

Effect of pay to 3rd person •

Generally, not valid: unless benefitted the incapacitated creditor, w/c needed be proven by debtor

Proof not needed: i. ii. iii.

After payment, subrogation to 3rd person Ratification by creditor to 3rd person By C’s conduct, D believe 3rd person is authorized to receive

Art. 1242 – payment to 3rd person in possession of credit

Governing law •

Obligation extinguished: • •

Possession of credit itself, not mere document or instrument Debtor must pay in good faith

Art. 1243 – when payment to creditor not valid i. ii.

iii.

3rd person file case against creditor for not paying 3rd person During pendency of case, court ordered debtor not to pay creditor until case resolved “garnish” – payment subject to 3rd person by debtor

Art. 1244 – very prestation due must be complied with; when prestation may be substituted i.

ii.

Real obligation: thing different from due cant be offered/demanded against will of creditor/debtor Personal obligation: act performed/prohibited cant be substituted against creditor’s will

Prestation substituted: •

When creditor consents (facultative)

Art. 1245 – special forms of payment; meaning of dation in payment; governing law i. ii. iii. iv.

Dation in payment Application of payments Payment by cession Tender of payment and consignation

Dation in Payment • •

Adjudication/ dacion en pago Debt in money satisfied by alienation of property

Law of sales – amount of money debt becomes price of thing alienated

Art. 1246 – rule of the medium quality • •

• •

Delivery of specific thing, very thing must be delivered Generic thing, considers purpose of obligation & other circumstance to determine quality/kind of the thing to be delivered Art. 1246 – “principle of equity” Benefit waived by creditor: accepting inferior quality – delivering superior quality

Art. 1247 – debtor pays for extrajudicial expenses; losing party generally pays judicial cost •

•

Reason: when obligation is extinguished, debtor is benefitted, unless stipulated who will bear expenses Doesn’t apply to expense by creditor going to debtor’s domicile to collect

Judicial Cost • • • •

Amounts allowed to a party to an action for his expense incurred in the action Paid by losing party Special reasons: either party shall pay cost or divided Cost against gov’t not allowed, unless provided by law

Art. 1248 – performance of obligation should be complete; when partial performance allowed •

One debtor, one creditor

Partial payment allowed: i.

Expressed stipulation

ii. iii.

Debt part liquidated; part unliquidated Different prestation subject to diff. terms & conditions (pay debts in installments); need not executed simultaneously but must be complete

Art. 1249 – meaning of legal tender; legal tender in the Philippines; payment by means of instruments of credits

a. Until cashed b. Unless impaired through fault of creditor Art. 1250 – meaning of inflation and deflation; basis of payment in case of extraordinary inflation or deflation i.

•

Legal Tender • • •

Currency If offered in right amount, creditor must accept Debt in money be paid in currency stipulated

ii.

Basis of payment: •

Legal Tender in Ph. • • •

•

Absence of stipulation: payment made in legal tender in the Ph. All notes & coins issued by BSP Coins – not exceeding P50 for denominations of P0.25; not exceeding P20 for P0.10 Bills & coins above P1, any amount allowed

Payment by instrument credits i.

ii.

Right of creditor to refuse/accept – promissory notes, checks, bills of exchange etc. are not legal tender, creditor can’t be compelled to accept a. Creditor may accept w/o effect of payment. Demand to obligation is suspended b. C can cash instrument. When dishonored, C bring action for non-payment Effect on obligation – payment by means of mercantile document doesn’t extinguish obligation:

Inflation – sharp & sudden increase of money/credit or both (ex. P5T to P2.5T) Drop in value of money cause rise in price Deflation – reduction in volume & circulation of money/credit, result in decline of price (P5T to P10T)

•

Purchasing value of currency at establishment of obligation, subject to agreement of parties to contrary Contractual obligation

Ex. D debt P5T to C (5 yrs. to pay). At time of payment, D pay P2.5T (inflation) or P10T (deflation) unless stipulated to pay P5T regardless. Art. 1251 – place where obligation shall be paid i. Case of stipulation – place designated ii. Stipulation & determinate thing – payment is made where the thing was when contract is perfected iii. No stipulation & generic thing – payment at domicile of debtor & creditor bears expense Terms: • • •

Venue – place where court suit/action must be filed/constituted Domicile – place of person’s habitual residence Residence – element of domicile; requires bodily presence

Subsection 1. – application of payments. art. 1252 – meaning of application of payments; requisites of application of payments; application as to debts not yet due; rules of application of payments application of payments – designation of debt to w/c should be applied the payment by a debtor who has various debts of the same kind in favor of 1 creditor Requisites: i. ii. iii. iv.

• •

•

• •

Can’t be made unless:

ii.

Stipulation that debtor may apply Made by debtor/creditor, for whose benefit the period has been constituted

Rules: i. ii. iii. iv.

v.

D indicate at time of payment, not afterwards, w/c debt is being paid Decision of D irrevocable, unless C consents If debtor doesn’t apply, C designates w/c debt is paid If C doesn’t apply/application invalid, debt is designated to most onerous to D If debts same nature & burden, payment applied to all proportionately

If no application of payment: apply to most onerous Same nature & burden: apply payment to debt proportionately

Debt more onerous than another:

Application to debts not due:

i.

Mandatory: interest paid before principal Subject to agreement of parties/waiver

art. 1254 – application of payment to most onerous debt; when debt more onerous than another; where debts subject to different burdens •

1 debtor & creditor 2 or more debts Debts are same kind Debt to w/c payment be applied is due Payment made not enough to cover all debts

v.

art. 1253 – interest earned paid ahead of principal

Subjective to D Rules by Supreme Court: o Interest-bearing is more onerous than non-bearing one o Sole debtor than solidary debtor o Secured debts (by mortgage or by pledge) than unsecured debts o Between interest-bearing debts, one w/ higher int. o Obligation w/ penalty than w/o penalty

Debts subject to diff. burdens: •

•

Ex. Debt secured by mortgage & debt w/ penalty; it can’t be determined w/c is most onerous Payment applied proportionately

subsection 2. – payment by cession art. 1255 – meaning of payment by cession ; requisites of payment by cession; effects payment by cession; dation in payment and cession distinguished

payment by cession – assignment or abandonment of all properties by D that the creditor may sell the same & apply proceeds to satisfy debt to creditors Requisites payment by cession: i. ii. iii. iv.

2 or more Cs D be (partially) insolvent Assignment of all properties of D Cession be accepted by Cs

Effects payment by cession: Unless stipulation • •

Assignment not make Cs owner of D’s property D release from obligation up to net proceed of sale

tender of payment – act of D of offering the thing or amount due; D must show possession of thing/money at time of offer consignation – act of depositing thing/amt. due w/ the proper court when C doesn’t want/can’t receive it; applicable to debt/obligation to pay; always judicial & require tender of payment Requisite valid consignation: i. ii. iii. iv. v.

Dation in payment & payment by cession:

Existence of debt due Tender of payment; refusal of C w/o justifiable reason Previous notice of consign. to person interest in fulfillment of obli. Consign. of thing/sum due Subsequent notice of consignation to interested parties

Tender of payment not required: i. ii.

iii.

iv.

v.

Dation – 1 creditor; Cession – several Cs Dation – doesn’t presuppose D’s insolvency; Cession – D insolvent at time of assignment Dation – not involve all property of D; Cession – extend to all property of D subject to execution Dation – C becomes owner of thing given by D; Cession – acquire right to sell & proceeds apply to their credit proportionately Dation – act of novation; cession – not act of novation

subsection 3. Tender of payment and consignation art. 1256 – meaning of “tender of payment” and “consignation”; requisites of a valid consignation; when tender of payment not required; requirements for valid tender of payment

•

•

C informs D that payment of debt will not be accepted, thereby waives payment when its due D excused from making formal tender of money

Requirement valid tender of pay: i. ii. iii.

Must comply rules of payment/terms in contract Unconditional; whole amt due; in legal tender Actual offer of thing/amt due

art. 1257 – prior notice to persons interested required; consignation must comply w/ provisions on payment • •

Absence of notice persons interested in fulfillment of obli = consignation void Purpose: C a chance to reflect his refusal because he bears expense of consignation & loss of thing consigned

Provisions on payment: • •

Provisions: 1233, 1239, 1244, 1246, 1249, 1253 Payment made in legal tender

art. 1258 – consignation must be w/ proper judicial authority; notice to be given to interested parties of the consignation made W/ proper judicial authority: • • •

Deposit thing/sum due w/ proper judicial authority will effect payment Tender of pay must precede consignation, tender prove by D Tender not required = only prior notice be proved by D

art. 1260 – withdrawal of debtor of thing or sum deposited withdrawal of deposit: i. ii.

As D still the owner of the same Obli remains in force; all expenses D bears art. 1261 – effect of withdrawal w/ authority of creditor effect withdrawal authorized by C: •

Notice to other parties: • •

After consignation is made, interested parties must be notified Fulfilled by service of summons & copy of complaint upon the defendants

art. 1259 – creditor bears expenses of consignation; when consignation deemed properly made C bears expense: • •

Because of unjustified refusal D bears if consignation not properly made

Consignation properly made: i. ii. iii.

C accepts thing/sum deposited w/o objection C questions validity, court proves consignation valid after hearing C neither accepts nor questions, court cancels obligation after hearing

Before C accepts consignation Or before judicial declaration that consignation is properly made

• • •

C may authorize withdrawal; (1) after accepting it or (2) after court cancels obligation D & C relations will remain as before C losses preference over the thing Co-D, guarantor, sureties be released

section 2. – loss of the thing due art. 1262 – when a thing is considered lost; when lost of thing will extinguish an obligation to give; when lost of thing will not extinguish liability Thing considered lost: • • • •

Impossibility of performance Perishes Goes out of commerce Existence unknown/cannot be recovered

When loss thing extinguished obli to give: Ff. requisites must be present i. ii. iii.

Obli to deliver specific thing Loss thing not fault of D D not guilty of delay

Loss thing not extinguish liability: i.

When law provides

ii. iii. iv.

Stipulation Nature of obli assumes risk Obli to deliver specific thing arise from crime

art. 1263 – effect of lost of a generic thing “genus nunqam perit” – a generic thing never perishes • •

D still compelled to deliver a thing of same kind C can’t demand superior quality, D can’t deliver inferior quality

art. 1264 – effect of partial loss of a specific thing • •

Portion of thing lost/destroyed or depreciated/deteriorated Obli to do – partial loss is the equivalent of difficulty of performance

Effect of partial loss: •

Court decides is partial loss is equivalent to complete/total loss

art. 1265 – presumption of fault in case of loss of thing in possession of debtor; when presumption not applicable presumption of fault: • •

Fault of D unless proof to contrary Under art. 1165, D who is not at fault still liable for delay or promised to deliver same thing to 2 or more person

Presumption not applicable: •

In case of natural calamity, presumption doesn’t apply

art. 1266 – effect of impossibility of performance; kinds of impossibility impossibility of performance: • • •

Obli physically & legally impossible Result in extinction of obligation Impossibility took place after constitution of obli

Kinds of impossibility: i.

ii.

Physical impossibility – involves obligor’s personal qualifications; takes place when obligor dies or physically incapacitated Legal impossibility – impossible by provision of law

art. 1267 – effect of difficulty of performance difficulty of performance: • • • •

Applicable to real and personal obligations Performance/service becomes so difficult Court authorize release of obligor in whole or in part Element of fortuitous event

art. 1268 – effect of fortuitous event where obligation proceeds from a criminal offense effect of fortuitous event obli proceed from crime: • •

Fortuitous not exempt obligor from liability Obli subsists except when C refuse to accept thing (ex. C’s stolen property); consignation not necessary but D exercise due diligence

art. 1269 – right of creditor to proceed against 3rd person

right of C against 3rd person: • •

C has right to proceed against 3rd person responsible for thing loss Rights of action of D are transferred to C & obli of D is extinguished

section 3. – condonation and remission of debt art. 1270 – meaning of condonation or remission; requisites of condonation or remission; kinds of remission; effect of inofficious remission meaning condonation or remission: condonation or remission – gratuitous abandonment of C his right against D; a form of donation Requisites: i. ii. iii. iv. v.

depriving descendants of the shares of a succession to which they are entitled by law Legitime – part of testator’s property he can’t dispose because law reserved it to compulsor...