Fifth Week Assignment

Extinguishment of Obligation

1. Give and define each mode of extinguishing an obligation; give an example for each.

Art. 1231. Obligations are extinguished:

(1) By payment or performance - is that mode of extinguishing obligations which

consists of:

(a) the delivery of money, or

(b) the performance in any other manner of an obligation.

Example:

X contracted Y to paint his house for P10,000 to be finished in one (1) month. Y finished
painting the house of Y before the due date. After that, X immediately paid Y.

(2) By the loss of the thing due;

Under Article 1262:

 An obligation to give a determinate thing will be extinguished if the thing

should be lost or destroyed without the fault of the debtor and before he has
incurred in delay.
It is evident from this rule that before the loss of the thing due will result in the
extinguishment of the obligation, it is necessary that the following requisites must
concur:
(1) The thing which is lost must be determinate.
(2) The thing is lost without any fault of the debtor. If the thing is lost through the
fault of the debtor, the obligation is not extinguished; it is simply converted into
an obligation to indemnify the creditor for damages.
(3) The thing is lost before the debtor has incurred in delay. If the thing is lost
after the debtor has already incurred in delay, the rule is that such debtor can still
be held liable for indemnity for damages.
 Effect of Loss in Generic Obligations to Give. — If the obligation is generic in
the sense that the object thereof is designated merely by its class or genus without
any particular designation or physical segregation from all others of the same
class, the loss or destruction of anything of the same kind even without the
debtor’s fault and before he has incurred in delay will not have the effect of
extinguishing the obligation.
 Example: X obliged himself to give a specific horse to Y. Before X was able to
deliver the specific horse, it died because he did not give him enough food to eat.
Therefore, the obligation is extinguished. Y has the right to claim damages.

(3) By the condonation or remission of the debt;

Condonation or remission is essentially gratuitous and requires the acceptance by the

obligor. It may be made expressly or impliedly. One and the other kinds shall be subject
to the rules which govern inofficious donations. Express condonation shall, furthermore,
comply with the forms of donations.

Example: D is indebted to C for the amount of P5,000. C, because of the kindness of D,

condoned, the obligation. D accepted the condonation. Therefore, the obligation is
extinguished.

(4) By the confusion or merger of the rights of creditor and debtor;

Confusion or merger is when the obligation is extinguished from the time the characters
of creditor and debtor are merged in the same person.

Example: D owes C, P10,000, for which C issued a promissory note in favor of C. C

indorsed the note to X who, in turn endorsed it to Y. Now, Y bought goods from D.
Instead of paying cash to D, Y just endorsed the promissory note to D.

(5) By compensation;

Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.

Example: D is indebted to C for P5,000 which is already due. C, on the other hand
bought the bag of D worth P5,000 also. Here, the obligation is extinguished because D
and C are debtors and creditor of each other.

(6) By novation

Novation is the substitution or change of an obligation by another, resulting in its

extinguishment or modification, either by changing its object or principal conditions, or
by substituting another in place of the debtor, or by subrogating a third person in the
rights of the creditor.

Example: X obliged himself to give Y a specific horse if he passes the bar exam. But
before the bar exam, X suggested to Y to change the object into a brand-new watch.
Then, Y agreed.
2. Who shall make the payment?

The following may pay or perform the obligation:

1. The debtor himself or his legal representative;

2. Any third person.

3. To whom shall payment be made?

Payment shall be made, as a general rule, to the following:

(1) the person in whose favor the obligation has been constituted, or

(2) his successor in interest, or

(3) any person authorized to receive it.

4. How is payment made?

When Obligation Is Understood Paid or Performed. — As a consequence of the rule

stated in Art. 1233, an obligation to give shall be understood to have been paid when the
debtor or obligor has completely delivered the thing which he had obligated himself to
deliver; an obligation to do shall be understood to have been performed when the obligor
has completely rendered the service which he had obligated himself to render; an
obligation not to do shall be understood to have been complied with when the obligor has
completely refrained from doing that which he had obligated himself not to do.

5. Where are you supposed to pay?

Under Art. 1251. Payment shall be made:

 In the place designated in the obligation. There being no express stipulation and if
the undertaking is to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was constituted.
 In any other case, the place of payment shall be the domicile of the debtor.
 If the debtor changes his domicile in bad faith or after he has incurred in delay,
the additional expenses shall be borne by him. These provisions are without
prejudice to venue under the Rules of Court.

6. What shall be the means of payment?

Under Article 1232, payment is made by:

 Delivery of the sum of money or

 Performance, in any other manner thereof.
7. What are the different kinds of payment? Be able to explain each and give an
example for each

DIFFERENT KINDS OF PAYMENT

A. Dation in payment

Property is alienated to the creditor in satisfaction of a debt in money. At the time of the
constitution of the obligation what is due is money, but at the time of fulfillment, the
debtor could no longer deliver the money. So, what he did instead is to offer that instead
of the money, he will deliver another thing in lieu of the money. If the creditor accepts,
then the obligation is extinguished, depending on the agreement of the parties. If it
extinguishes the entire obligation then there is full extinguishment. But, if it will only be
based on the value of the thing that is delivered, and it is not sufficient to cover the
monetary obligation, then there is partial fulfillment.

Example: To pay my debt of P1,000,000 in favor of Bella, I gave her with her consent a
diamond ring instead worth P1,000,000.

B. Application of payments

may be defined as the designation of the debt to which the payment must be applied when
the debtor has several obligations of the same kind in favor of the same creditor.

Example: A owes B P1 million payable Apr. 1. A also owes B P1 million payable Apr.
5. On Apr. 10, A pays B P1 million. Here, we will not know which debt has been
extinguished unless we know the rules on the application of payments.

C. Assignment in favor of Creditors (cession)

It is the process by which a debtor transfers all the properties not subject to execution in
favor of his creditors so that the latter may sell them, and thus apply the proceeds to their
credits.

Example: X is obliged to pay to Y P1,000,000. But he became partially insolvent. He

gave his car instead to car. They sold it and the proceeds where paid to Y.

D. Tender of payment and consignation.

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. It is an act preparatory to consignation,
which is the principal, and from which are derived the immediate consequences which
the debtor desires or seeks to obtain.
 Consignation is the act of depositing the thing or amount due with the proper court when
the creditor does not desire, or refuses to accept payment, 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.

A owes B a sum of money. A gives B the money but B refuses without just reason to
accept it. A must deposit the money in court since his tender of payment was refused
without just reason. His deposit in court is called consignation.

8. Give the requisites of merger or confusion; compensation; novation

Requisites of Merger or Confusion:

1. It should take place between the principal debtor and creditor. Therefore,
confusion of the creditor with the person of the guarantor does not extinguish the
principal obligation. (Art. 1276). Of course, in a case like this, the accessory
obligation of guaranty is extinguished.

Therefore also, there can be no confusion or merger if the debtor and creditor
represent (different) juridical entities even if the officers of both are the SAME.
(Kapisanan ng mga Manggagawa sa MRR v. Credit Union, etc., L-14332, May
20, 1960)

2. The merger must be clear and definite.

3. The very obligation involved must be the same or identical (because if the debtor
acquires certain rights from the creditor with respect to other things, there is no
merger).

Requisites of Compensation:
 It is a mode of extinguishing to the concurrent amount, the obligations of those
persons who in their own right are reciprocally debtors and creditors of each
other.
 It is the offsetting of 2 obligations which are reciprocally extinguished if they are
of equal value or extinguished to the concurrent amount if of different values. It is
a simplified or abbreviated payment because the 2 debts are extinguished without
requiring the transfer of money or property from one party to the other.

Requisites of Novation:

1. a previous valid obligation;

2. agreement of the parties to the new obligation;
3. extinguishment of the old obligation;
4. validity of the new obligation.
9. What is legal compensation? Give the requirements.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor

10. Be able to give the definition of other causes of extinguishment of obligations, such
as prescription, compromise agreement, etc.
a. Annulment – court decision which treats an obligation as void from the
beginning or non-existent due to vitiation of consent.
b. Rescission - is an equitable remedy granted by law to the contracting
parties and sometimes even to third persons in order to secure reparation
of damages caused them by a valid contract, by means of the restoration of
things to their condition prior to the celebration of said contract
c. fulfillment of a resolutory condition
d. prescription
e. death of a party in case the obligation is a personal one, as when a singer,
hired to perform at a concert, dies before the concert begins
f. resolutory term — here the obligation ceases upon the arrival of the term
g. change of civil status — as when a married woman becomes a widow, or
when an unmarried woman gets married
h. compromises
i. mutual dissent as when both parties to a contract refuse to go ahead with
the contract
j. impossibility of fulfillment
k. fortuitous event

11. Give the different prescriptive periods for actions that you can file in court.

 Obligation created by law or from contract – 10 years

 Rights arising from oral contracts and quasi-contracts – 6 years
 Rights arising from torts - prescribes in 4 years from the time of the commission
of the negligent act.
  Actions for rescission and annulment of contracts - prescribes in 4 years the
latter from the time the fraud or mistake is discovered or when the incapacity,
violence, intimidation, or undue influence ceases to exist.

12. Give the effects of extinguishment of an obligation to the parties.

 Debtor – released from the obligation

 Creditor – has no right to enforce the performance of the obligation.