Reviewer in Law CHAPTER 4 PDF

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Reviewer in Law CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS 1) Major causes of extinguishment of obligation payment or performance loss of the thing due condonation or remission of debt confusion or merger of rights of creditor and debtor compensation novation 2) Other causes of extinguishment of obliga...

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Reviewer in Law CHAPTER 4 – EXTINGUISHMENT OF OBLIGATIONS

1)

Major causes of extinguishment of obligation

·

By payment or performance

·

By loss of the thing due

·

By condonation or remission of debt

·

By confusion or merger of rights of creditor and debtor

·

By compensation

·

By novation

2)

Other causes of extinguishment of obligation

·

Death of a party in case the obligation is a personal one

·

Mutual desistance or withdrawal

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Arrival of a resolutory period

·

Compromise

·

Impossibility of performance

·

Happening of a fortuitous event

3) Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment and performance are synonymous in law.

4) Debt – may refer to an obligation to deliver money, to deliver a thing, to do an act, or not to do an act.

5) General Rule: Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. Exception to the general rule: a) Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

b) Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

6)

Requisites for the application of Art. 1234/ substantial performance

·

There must be a substantial performance

·

The obligor must be in good faith

7)

Requisites for the application of Art. 1235/ incomplete and irregular performance

·

The obligee knows that the performance is incomplete or irregular

·

He accepts the performance without expressing any protest or objection

8) General Rule: Article 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. Exception: Unless there is a stipulation to the contrary General Rule: Second paragraph of Article 1236. Whoever pays for another may demand from the debtor what he has paid. Exception: Except 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.

9)

Persons from whom the creditor must accept payment

·

The debtor

·

Any person who has an interest in the obligation (like a guarantor)

· A third person who has no interest in the obligation when there is stipulation that he can make payment

10) Effect of payment by third person · If made without the knowledge or against the will of debtor – the payer can only recover from the debtor the amount which has been beneficial to the latter. · If made with the knowledge and consent of the debtor – the payer has the right to reimbursement for the whole amount that has been paid and subrogation of rights of creditor.

11) General Rule: Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. Exceptions to the general rule: Article 1302. Legal subrogation by operation of law is presumed in certain cases.

12) Reimbursement – the third person entitled by reason of payment has merely the bare right to be refunded to the extent provided in the second paragraph of Article 1236 without the right to the guarantees and securities of the original obligation.

13) Subrogation – there is no real extinction of the obligation, but only a change of creditor.

14) Article 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor’s consent. But the payment is in any case valid as to the creditor who has accepted it.

15) General Rule: Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid. Exception to the general rule: Article 1427. When a minor entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.

16) Free disposal of the thing due – means that the thing to be delivered must not be subject to any claim or lien or encumbrance of a third person.

17) Capacity to alienate – means that the person is not incapacitated to enter into contracts and for that matter, to make a disposition of the thing due.

18) Person to whom payment shall be made · The creditor or obligee (He must be the creditor at the time the payment is to be made not at the constitution of the obligation. Hence, if a person is subrogated to the right of the creditor, payment should be made to the new creditor.) ·

His successor in interest

·

Any person authorized to receive it

19) Any person authorized to receive payment ·

Guardian of a ward

·

Administrator of executor of the estate of a deceased

·

Liquidator of a partnership/corporation

·

Persons authorized by special power of attorney

·

Third person provided that the payment benefits the creditor

20) Ward – minor person or person of age but has a mental disposition of that as a minor.

21) General Rule: Article 1241. Payment to a person incapacitated to administer or manage his property is not valid. Except: a) The incapacitated person kept the thing paid or delivered. b) Or he was benefited by the payment

22) General Rule: Article 1241. Payment to a third person is not valid. Exception: The payment has been redounded to the benefit of the creditor and payment made in good faith (presumed) to any person in possession of the credit. (Art. 1242)

23) General Rule: Article 1241. It is not presumed and therefore must be proven that the creditor was benefited by the payment made to a third person. Exception: When benefit to creditor need not be proved by debtor a) Subrogation of the payer in the creditor’s right b) Ratification by the creditor c) Estoppel on the part of the creditor

24) Estoppel – an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

25) Ratification – process of cleansing the defect in a contract by acknowledging its validity despite its defects. Recognizing a person’s authority despite the absence of it.

26) Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.

27) General Rule: Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligation to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee’s will. Exception: Substitution can be made if the obligee consents, for example in facultative obligations. Article 1244 will not also apply in case of waiver by the creditor or substitution is allowed by stipulation with the consent of the creditor.

28) Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.

29) Special forms of payment ·

Dation in payment

·

Application of payments (stictly speaking, it is not a special form of payment)

·

Payment by cession

·

Tender of payment and consignation

30) Dation in payment (adjudication or dacion en pago) – is the conveyance of ownership of a thing as an accepted equivalent of performance. An existing debt in money is satisfied, not by payment of money but by the alienation of property.

31) General Rule: Article 1246. (Rule of medium quality and a principle of equity) When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. Exception: The benefit of this article may be waived by the creditor or by accepting a thing of inferior quality, and by the debtor by delivering a thing of superior quality.

32) General Rule: Article 1247. Extrajudicial expenses required by the payment shall be for the account of the debtor.

Exception: Unless it is otherwise stipulated, stipulation of the parties must be followed. This article does not apply to expenses incurred by the creditor in going to the debtor’s domicile to collect.

33) Judicial costs – are the statutory amounts allowed to a party to an action for his expenses incurred in the action. The costs of an action shall, as a rule be paid by the losing party. The court may, however, for special reasons, adjudge that either party shall pay the costs or that the same be divided as may be equitable.

34) General Rule: Article 1248. The creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. Exceptions: When partial performance is allowed a) when there is an express stipulation to that effect b) when the debt is in part liquidated and in part unliquidated c) when the different prestations in which the obligation consists are subject to different terms or conditions which affect some of them.

35) Legal Tender – is that currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount.

36) General Rule: Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment. Except: Unless there is an agreement to the contrary.

37) Inflation – is a sharp sudden increase of money or credit or both without a corresponding increase in business transactions. It causes a drop in the value of money, resulting in the rise of the general price level.

38) Deflation – is the reduction in volume and circulation of the available money or credit, resulting in a decline of the general price level; it is the opposite of inflation.

39) Place where obligation shall be paid ·

If there is a stipulation, the payment shall be made in the place designated.

· If there is no stipulation and the thing to be delivered is specific, the payment shall be made at the place where the thing was, at the perfection of the contract. · If there is no stipulation and the thing to be delivered is generic, the place of payment shall be the domicile of the debtor. In this case, the creditor bears the expenses in going to the debtor’s place to accept payment.

40) Venue – is the place where a court suit or action must be filed or instituted.

41) Domicile – is the place of a person’s habitual residence; the place where he has his true fixed permanent home and to which place he, whenever he is absent, has the intention of returning.

42) Residence – is only an element of domicile. It simply requires bodily presence as an inhabitant in a given place.

43) General Rule: Article 1252. Application of payment shall not be made as to debts which are not yet due. Except: The parties so stipulate or when the application of payment is made by the party for whose benefit the term has been constituted.

44) General Rule: Article 1252. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same. Except: There is a cause for invalidating the contract.

45) Application of payments – is the designation of the debt to which should be applied the payment made by a debtor who has various debts of the same kind in favor of one and the same creditor.

46) Requisites for application of payments ·

There must be one debtor and one creditor

·

There must be two or more debts

·

The debts must be of the same kind

·

The debts to which the payment has been applied must be due

·

The payment made must not be sufficient to cover all the debts

47) Rules on application of payments · The debtor has the first choice; he must indicate at the time of making payment, and not afterwards, which particular debt is being paid. If, in making use of his right, the debtor applied the payment to a debt, he cannot later claim that it should be applied to another debt. The right to make the application once exercised is irrevocable unless the creditor consents to the change. · If the debtor does not apply payment, the creditor may make the designation by specifying in the receipt which debt is being paid. The debtor must consent to this. · If the creditor has not also made the application, or if the application is not valid, the debt, which is most onerous to the debtor among those due, shall be deemed to have been satisfied. · If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.

48) General Rule: Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. Exception: The rule is subject, however, to any agreement between the parties, or to waiver by the creditor.

49) Rules to onerosity · An interest-bearing debt is more onerous than a non-interest bearing debt even if the latter is an older one. ·

A debt as a sole debtor is more onerous than as a solidary debtor.

·

Debts secured by a mortgage or by pledge are more onerous than unsecured debts.

·

Of two interest bearing debts, the one with a higher rate is more onerous.

· An obligation with a penalty clause is more burdensome than one without penalty clause.

50) General Rule: Article 1255. Payment by cession shall only release the debtor from responsibility for the net proceeds of the thing assigned. Exception: Unless there is a stipulation to the contrary.

51) Payment by cession – is another special form of payment. It is the assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order that the latter may sell the same and apply the proceeds thereof to the satisfaction of their credits.

52) Requisites of payment by cession ·

There must be two or more creditors

·

The debtor must be insolvent

·

The cession must be accepted by the creditors

53) Dation in payment and cession distinguished · In dation, there is usually only one creditor, while in cession, there are several creditors. · Dation does not presuppose the insolvency of the debtor, while in cession, the debtor is insolvent at the time of assignment. · Dation does not involve all the property of the debtor, while cession extends to all the property of the debtor subject to execution. · In dation, the creditor becomes the owner of the thing given by the debtor, while in cession, the creditors only acquire the right to sell the thing and apply the proceeds to their credits proportionately.

54) Article 1256. If the creditor to whom tender of payment has been refused without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: a) When the creditor is absent or unknown, or does not appear at the place of payment b) When he is incapacitated to receive the payment at the time it is due c) When, without just cause, he refuses to give a receipt d) When two or more persons claim the same right to collect e) When the title of the obligation has been lost

55) Tender of payment – is the act, on the part of the debtor, of offering to the creditor the thing or amount due. The debtor must show that he has in his possession the thing or money to be delivered at the time of the offer.

56) Consignation – is the act of depositing the thing or amount due with the proper court when the creditor does not desire or cannot receive it, after complying with the formalities required by law. It is always judicial and it generally requires a prior tender of payment which is by its very nature extrajudicial.

57) Requisites of a valid consignation ·

Existence of a valid debt which is due

· Tender of payment by the debtor and refusal without justifiable reason by the creditor to accept it ·

Previous notice of consignation to persons interested in the fulfillment of the obligation

·

Consignation of the thing or sum due

·

Subsequent notice of consignation made to the interested parties

58) Requisites for valid tender of payment · Tender of payment must comply with the rules on payment (Art. 1256-1258). The tender, even if valid, does not by itself produce legal payment, unless it is completed by consignation. ·

It must be unconditional and for the whole amount.

·

It must be actually made.

59) Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor.

60) When consignation deemed properly made · When the creditor accepts the thing or sum deposited, without objection, as payment of the obligation · When the creditor questions the validity of the consignation, and the court, after hearing, declares that it has been properly made · When the creditor neither accepts nor questions the validity of the consignation, and the court after hearing, orders the cancellation of the obligation

61) The debtor may withdraw as a matter of right the thing or sum deposited ·

Before the creditor has accepted the consignation

· Before a judicial declaration that the consignation has been properly made, as he is still the owner of the same. In such a case, the obligation shall continue to remain in force. All expenses are paid by the debtor.

62) Article 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released.

63) Thing is Lost – when it perishes, or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered.

64) Loss of a determi...