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Extinguishment of Obligation - Reviewer
Extinguishment of Obligation - Reviewer
Extinguishment of Obligation - Reviewer
Extinguishment of Obligations
General Provisions
1. payment or performance
2. loss of the thing due
3. condonation or remission of debt
4. confusion or merger of rights
5. compensation
6. novation
Other causes:
1. annulment
2. rescission
3. fulfillment of resolutory condition
4. prescription
More other causes
Payment means not only the delivery of money but also the performance in any other manner, of an
obligation
payment
1. delivery of money
2. performance
obligation to give (payment)
obligation to do or not do (performance)
payment by whom?
1. debtor
2. agent of debtor
3. estate thru administrative or executor
4. third person
who has interest in fulfillment of obligation (siya ang hahabulin ni creditor pag hindi
makabayad si debtor)
who has no interest in fulfillment of obligation (hindi mahahabol ni creditor pag hindi
nakabayad si debtor)
Whoever pays on behalf of the debtor without the knowledge of the debtor or against the will of the
debtor cannot compel creditor to subrogate him in his rights such as those arising from, mortgage,
guaranty, or penalty.
EXAMPLE
Jojo pays Caesar’s transportation fare without Caesar’s knowledge or against his will. Jojo later discovers
that Caesar is entitled only to half-fare. Can Jojo recover?
Yes, but only up to the extent of payment that has been beneficial to Caesar; thus, half-fare only. He can
recover the another half-fare to the driver (creditor).
Jojo owes Caesar P1,000,000. Jojo paid Caesar P600,000. Dio, Jojo’s best friend paid Jojo’s debt to
Caesar P1,000,000 as to surprise him for his birthday. How much can Dio recover from Jojo?
Dio can only recover to Jojo P400,000. And the payment by mistake of P600,000 can be recovered to
Caesar.
Subrogation
- enabling a new party who has been put to shoes of creditor, exercise all the rights that could
have been exercised by creditor
EXAMPLE
Jojo borrowed P1,000,000 from Jaja, secured by a mortgage of Jojo’s land in favor of Jaja. Jiji, his
bestfriend, paid Jaja sum of money for Jojo’s debt of P1,000,000 without Jojo’s knowledge.
May Jiji claim reimbursement from Jojo? If yes, how much?
(Yes, Jiji may claim reimbursement from debtor in an amount of P1,000,000.)
If Jojo cannot pay, may Jiji foreclose the mortgage on Jojo’s land?
(No, because Jiji does not have right to subrogation)
EXAMPLE
Jaja borrowed P1,000,000 from Dio. Jojo, Jaja’s ex-boyfriend, told Jaja that he will pay Dio her debt of
P1,000,000 and he did not want her to pay him back.
Jojo paid the P1,000,000 debt of Jaja without her consent. Dio accepted the payment of Jojo in behalf of
Jaja. Is Jaja’s obligation to Dio extinguished? May Jojo recover from Jaja what he has paid to Dio?
(Yes, Jaja’s obligation is extinguished. Jojo may recover the whole amount of P1,000,000 because that’s
the amount benefited by debtor.)
ART. 1241 Payment made by AND to incapacitated person
except:
1. when a minor entered into a contract (without consent of parent or guardian) voluntarily pays
sum of money or delivers a fungible thing in fulfillment of obligation
he has no right to recover the same from creditor who has spent it in good faith
EXAMPLE
Jaja, a minor, entered into a contract without consent of her parents where she was supposed to pay Jiji an
amount of P1,000,000. Jjji did not know Jaja is a minor. On June 1, Jaja voluntarily paid her debt to Jiji.
Out of P1,000,000, Jiji spent already the P600,000 for her needs. Later, Jaja’s parents learned the
transaction and brought an action to recover the P1M paid to Jiji.
How much shall parents of Jaja can recover from Jiji?
(They can only recover amount of P400,000)
EXAMPLE
Jaja owes Jojo P1,000,000. At the time of Jaja’s payment, Jojo was already insane. However, Jojo kept
the money paid by Jaja in his cabinet. Is obligation extinguished?
(Yes, because he kept the thing delivered by debtor)
Suppose that Jojo spent the P600,000 for his personal and medical needs while P400,000 was used by him
to light a fire in the neighborhood. Is obligation extinguished?
(Yes but only up to P600,000 because that was the only amount that has been beneficial to the
incapacitated person, thus debtor still needs to pay the P400,000 as to extinguish fully his obligation)
NOTE:
kung ano pinangako, iyon ang dapat ibigay based sa napag-usapan
payment or performance must be completely delivered and rendered
partial performance will not produce extinguishment of obligation
a. unless of doctrine of substantial performance
ART. 1234. doctrine of substantial performance
- obligation has been performed substantially in good faith & debtor may recover as tho there had
been complete fulfillment less damages suffered by creditor
- there is breach of contract since debtor only perform substantial performance
- attempt of good faith to perform
does the creditor have the right to rescission since debtor incurred breach of contract?
- no because there is a substantial performance
NOTE:
1. Obligation to deliver a specific thing: debtor must deliver the specific thing based on their
stipulation
- debtor cannot compel creditor to accept a different thing that is not agreed upon (kahit na mas
valuable pa iyon sa napag-usapan nila)
2. Obligation to deliver a generic thing: creditor cannot demand a superior quality nor debtor cannot
deliver a thing of inferior in quality
EXAMPLE
Jaja borrowed from Jojo P5,000 payable after 5 years. On maturity of obligation, value of P5,000
increased because of extraordinary inflation. Assume that the value after 5 years increased to P20,000.
How much shall Jaja pay to Jojo?
(Jaja can pay P1250)
- designation of debts of debtors in terms of payment not sufficient to cover all his debts
- right of choice to application of payment to debts belongs to the debtor
EXAMPLE
On June 10, Jojo paid Jaja an amount of P20,000. Is application of payment allowed?
(No, because the P20,000 is not sufficient to cover any debts dued since the minimum debt amounts to P21,000)
Assuming Jojo paid P76,000 on June 10. Is there application of payment?
(No, because it is sufficient to pay all the due debts on June 10.)
1. debtor has right of choice which debts to apply payment; he cannot claim application of debt to another if
he has made a choice already
2. once right to make application has been used, it is irrevocable unless creditor permitted the change
3. if debtor has not apply payment to his debts, creditor may do so by specifying receipts w/c debts are being
paid
4. if neither debtor nor creditor has not made the application, apply to the most onerous debt
5. if equally onerous, apply proportionately
if debts are all equally onerous in nature and it cannot be determined which is more burdensome,
payment shall be applied proportionately to all of them
dation in payment – debtor alienates property in favor of creditor for satisfaction of monetary debt
effect:
as if creditor is buying some property of the debtor, payment for w/c is charged against debtor’s debt
- total extinguishment of debt
- debtor is solvent
payment by cession – debtor assigns or transfers all properties not subject to execution in favor of his
creditors so they can sell them and apply the proceeds to their credits
requisites of payment by cession
1. more than one debt
2. more than one creditor
3. complete or partial insolvency of debtor
4. assignment/transfer must involve ALL properties of the debtor
5. creditors must accept cession
NOTE:
1. creditors are only assignees of the properties of the debtor
2. mababayaran lang ni debtor ang utang niya up to extent nung proceeds from sale of his properties
general rule:
prior tender of payment must be made before consignation is allowed
except:
1. creditor is absent or unknown or do not appear at place of payment
2. creditor is incapacitated to receive payment at time it is due
3. creditor refuses to give a receipt w/o just cause
4. two or more persons claim the same right to collect payment
5. when title to obligations has been lost
NOTE:
1. court approves the consignation to fully extinguish debtor’s obligation
2. can debtor still withdraw the payment upon consignation?
- yes, before the court approves consignation
3. can debtor still withdraw the payment after court approves the consignation?
- yes, but creditor shall give his consent on it
4. creditor shoulders the expenses of consignation
EXAMPLE
J obliged himself to deliver 100 sacks of rice from his 2020 harvest. On Sep 2020, his rice field was
destroyed by the heavy storm and flood. Is the obligation extinguished?
(Yes, because the thing is an example of a delimited generic thing thus exception in the rule)
ART. 1265 presumption of fault in case loss thing is in possession of the debtor
- if the thing due was lost in possession in debtor, the presumption is debtor is at fault unless
there is proof to contrary
- debtor is still liable even if loss thing due was not his fault if he incurred a delay or he
promised to deliver the same thing to two or more persons who do not have any interest
- this does not apply in case of natural calamities
EXAMPLE
Jojo obliged himself to deliver a car to Jaja. On due date, the car was stolen while in possession of Jojo. Is
the obligation extinguished?
(No, because it is presumed that it is debtor’s fault while the thing was in his possession unless he proved
otherwise)
Assuming that the car was destroyed due to an unforeseen fire in the neighborhood. Is he still liable?
(No, because loss of thing due even it was in possession of debtor is due to natural calamity)
3. criminal offenses
- not extinguished even if caused by a fortuitous event
- except: if creditor refused to accept the thing without justification
EXAMPLE
Jojo stole Jaja’s car and is asked to return the car stolen to its owner Jaja. Assuming that before Jojo can
return the car, the car was destroyed by a neighborhood accidental fire. Is the debtor still liable?
(yes, because the obligation of debtor arises from a criminal offense)
Assuming that Jojo offered to return the stolen car to Jaja but Jaja refused. After 3 days, the car was
destroyed by an accidental fire. Is Jojo still liable? What shall be the remedy of debtor to release him from
his obligation.
(No, because he already offered fulfillment of obligation but the creditor refused. –mora accepiendi.
Debtor may do consignation)
- creditor has right to proceed against 3rd persons who are responsible to the loss thing due
EXAMPLE
Jojo obliged himself to give his car to Jaja. The car was set on fire by Jeje. Is the obligation extinguished?
Who has the right to sue Jeje?
(Yes, the obligation is extinguished. Creditor has the right to sue Jeje.)
condonation or remission of debt – gratuitous abandonment by creditor his right against the debtor
- if expressly stated – donation
- if implied – waiver
requisites:
1. there must have an agreement between debtor and creditor
2. both parties are capacitated
3. cause must be in liberality (gratuitous)
4. remission must not be inofficious
- inofficious – bawal magbigay or magcondone si creditor ng debt ni debtor na madedehado ang
mga heirs niya
5. formalities required in donation
- if immovable property – must be in a public instrument
- if movable property – value must exceed P5,000 (donation and acceptance must be in writing)
- if movable property is less than P5,000 – in any form
kinds of remission (EFDE)
1. as to extent - complete & partial
2. as to form - express & implied
3. as to date of effectivity – inter vivos (during lifetime); mortis causa (upon death)
presumption:
1. creditor delivered the document voluntarily which gives rise to:
a. presumption payment – unless it has been known that there is no such payment
b. presumption of remission
- accessory always follows the principal, thus if principal debts has been renounced, so thus the
accessory obligation
EXAMPLE
Jaja owes Jojo P10,000 with Jeje as guarantor. Principal debt was waived by Jojo. Is Jeje still liable?
(No, because guaranty was the accessory obligation; thus remission of the principal debt P10,000
extinguishes as well the guaranty)
presumption:
- only accessory obligation is extinguished, but not the principal debt
- debtor does not have to return the thing pledged to creditor
EXAMPLE
Jojo delivered to Jaja his necklace as a security to guarantee the payment of his loan P10,000. If later the
necklace is found in possession of Jojo, what is the presumption?
(It is presumed that Jaja has agreed to the loan without the pledge or accessory obligation)
confusion/merger of rights – meeting in one person of characters of creditor & debtor with respect to
same obligation.
rules
1. merger w/c takes place in principal debtor or creditor benefits the guarantors
2. merger w/c takes place in guarantors does not extinguish obligation
EXAMPLE
Jojo owes Jaja P5,000 and as payment made a check in the same amount & delivered it to Jeje.
Jeje used the same check to pay his debt to Jiji. And later Jiji used the same check to pay his debt to Jojo.
(Obligation is extinguished since bumalik din kay Jojo yung check)
Jojo owes Jaja P5,000 guaranteed by Jeje. Jaja assigns her credit to Jiji and Jiji assigns his right to Juju.
Juju assigns his right to Jojo.
(The obligation is extinguished because bumalik lang din kay Jojo ang assign of credit. and accessory
obligation is extinguished)
SECTION 5 - COMPENSATION
ART. 1278
compensation – when two persons, in their own right, are creditors & debtors of each other
- simplified payment
- quits ang parties sa utang nila
- extinguishment of concurring debts of two persons by operation of law
kinds of compensation:
1. conventional or voluntary – by agreement of parties
2. legal – by operation of law
3. judicial – order of court
4. facultative – one party has choice of substitution
EXAMPLE
Jojo owes Jaja P1,000 demandable & due on June 1.
(general rule, period is established for benefit of both creditor and debtor)
(Jojo cannot demand payment from Jaja earlier than June 10. While Jaja can demand payment as of June
1 – FACULTATIVE)
EXAMPLE:
Jojo owes Jaja P10,000 and Jaja owes Jojo P10,000.
(compensation will take place because Jojo and Jaja are both creditors and debtors of obligation)
Jojo owes Jeje P10,000 and Jaja owes Jojo P10,000 with Jeje as guarantor.
(No compensation. Since Jojo is principally liable to Jeje but Jeje is only subsidiarily liable)
Jojo owes 10,000 to Jaja, Jeje, and Jiji (partners in partnership JJ). And JJ owes Jojo 10,000.
(No compensation.)
2. both obligations must be payable in money or if payable in kind (consumable), they must be
in same kind and quality
EXAMPLE
Jojo owes Jaja a specific horse.
Jaja owes Jojo a specific horse.
NOTE:
- obligation is extinguished immediately in legal compensation because it is operated by law (kahit
na hindi alam ng both parties)
- automatically ang legal compensation
EXAMPLE
Jojo owed Jaja P10,000 and Jaja owed Jojo P10,000. Jeje is claiming that he has the right to the 10,000
that Jaja would pay to Jojo because Jojo has not paid his debt P10,000.
(No compensation because there is a controversy)
- exception the general rule that only principal debtors/creditors can set up compensation
- based on: extinguishment of principal obligation due to compensation, also extinguishes
accessory obligation (guaranty)
EXAMPLE
Jojo owes Jaja 60,000. Jeje is the guarantor of Jojo. Jaja owes Jojo 20,000. When Jaja demanded payment
from Jojo, he failed to pay. How much will Jeje be liable with?
(40,000 because guarantor can off-set the credit of debtor from creditor)
Assuming that Jaja owes Jojo 60,000 as well.
(The accessory obligation of Jeje is extinguished due to legal compensation of debtor and creditor)
- total compensation – two debts are of the same amounts; thus, extinguishes both debts
- partial compensation – two debts are of different amounts; thus, there will be remaining balance still
- party may set off claims against other party by proving his right to damages
EXAMPLE
Jojo owes Jaja 10,000. Jaja demanded payment but Jojo failed to pay. Due to her anger, she
destroyed Jojo’s car to the extent of 5,000. The claims of Jaja of 10,000 from Jojo can be
compensated by Jojo’s right to damages of 5,000.
- rescissible or voidable debts are valid until they are judicially rescinded or avoided. Prior
to rescission, debts can be compensated.
- since legal compensation AUTOMATICALLY takes effect, debts are extinguished to the
concurrent amount
EXAMPLE
Jojo owes Jaja 60,000 and Jaja owes Jojo 40,000, both due on Aug 31. All requisites for legal
compensation are present. On July 15, Jaja, with consent of Jojo, assigned her 60,000 credit to Jiji. How
much can Jiji collect from Jojo?
(Jiji can collect the whole 60,000 because as a general rule, if the assignment of rights of compensation
is with consent of debtor, the compensation cannot be setup. Since in the case, there is no reservation
stated, thus the general rule applies)
Jojo owes Jaja P1M due on June 30, 2021. Jaja owes Jojo P500,000 due on June 30, 2021 too. On April
15, Jaja assigned her P1M credit to Jeje with knowledge but without consent of Jojo. On June 30, how
much can Jeje collect from Jojo?
(Still the whole amount of P1M because the assignment takes place BEFORE the legal compensation
happened)
Jojo owes Jaja P50,000 due on April 1. While Jaja owes Jojo P100,000 due on April 10. Jojo owes Jaja
another debt P40,000 due on April 20. On April 15, Jojo assigns his right to Jeje with knowledge but
without consent of Jaja. How much can Jeje collect from Jaja?
(Jeje can only collect P50,000 because debts of Jojo matured until April 15 is only P50,000. Since Jaja’s
debt of P100,000 on this date has matured also, legal compensation could take place.)
Assuming that Jeje collects the money from Jaja on May 1. How much can she only collect?
(She can only collect 10,000 because all of Jojo’s debt had matured, thus can be offset to the debt of Jaja)
EXAMPLE
Jojo owes Jaja P50,000 due on April 1. While Jaja owes Jojo P100,000 due on April 10. Jojo owes Jaja
another debt P40,000 due on April 20. On April 15, Jojo assigns his right to Jeje without knowledge of
Jaja. On April 27, Jaja learned about the assignment. How much can Jeje collect from Jaja?
(She can collect 10,000 because compensation can be set up as a defense FOR ALL DEBTS
MATURED BEFORE knowledge of the assignment. Since Jaja learned the assignment on April 27,
debts matured prior to that date can be subject to legal compensation.)
ART. 1286. Compensation where debts payable at different places
foreign exchange – conversion of amount of money or currency of one country into an equivalent amount
of money
EXAMPLE
Jojo obliged himself to deliver 100 sacks of corn to Jaja’s domicile in Palawan. Jaja obliged herself to
deliver 100 sacks of rice to Jojo’s residence in Batanes. The transportation expenses are P1,000 and
P3,000 respectively. Jojo claimed compensation.
Thus, Jojo shall indemnify Jaja an amount of 2,000 for expenses.
EXAMPLE
Jojo has a P100,000 savings deposit with BDO. Jojo borrowed P60,000 from bank. Assuming Jojo cannot
pay P60,000. Can BDO say na i-offset na lang ang utang niya?
(Yes, because this is a contract of loan)
Jojo asked Jaja to keep 5,000 for her. Now, Jojo is indebted to Jaja for same amount.
(No because it is an example of depositum)
Jojo and Jaja are legally separated. By order of the court, Jojo is obliged to give monthly support of
50,000 to Jaja. Jaja owes Jojo 50,000 by way of loan.
(No, it’s an example of claim for future support)
Jojo owes Jaja P10,000. Jaja stole the ring of Jojo worth P10,000.
(Jaja cannot claim compensation while Jojo has right to claim compensation)
- if debtor has various debts w/c are susceptible to compensation, he must inform creditor which
of them shall be object of compensation.
- in case he fails to do so, compensation can be applied to the most onerous obligation
ART. 1290 consent of parties not required in legal compensation
- Legal compensation automatically extinguishes concurrent debts even if parties are not aware
of compensation
SECTION 5 – NOVATION
ART. 1291. Novation
Novation – total or partial extinction of obligation through creation of a new one w/c substitutes it
- change or substitution of obligation by another w/c extinguishes or modifies the first
obligation either:
1. changing the object of obligation or principal conditions
2. substituting the person of debtor
3. subrogating the third person in the rights of creditor
kinds of obligation
1. according to object/purpose
a. real or objective – change in object or principal condition
b. personal or subjective – change in parties
debtor (passive subject – substitution)
a. delegacion
b. expromission
creditor (active subject)
a. subrogation
c. mixed
ART. 1292 the new obligation must be declared in unequivocal terms or old & new are incompatible
requisites of novation
1. a previous and valid obligation
NOTE: if voidable obligation, pwede pa rin as long as hindi pa annulled.
2. capacity and consent of all parties
3. the intent to extinguish or modify old obligation by substantial difference
4. creation of a new valid obligation
novation is never presumed.
- it must be clearly established either
1. by express agreement of parties
2. acts of equivalent import
3. by incompatibility of two obligations.
NOTE: burden of proving existence of novation is to the party who claims novation
EXAMPLE
Jojo obliged himself to construct a 150 sqm house on his 200 sqm parcel of land on June 10. Jojo also
agreed to construct an 80 sqm apartment on June 10.
There is a novation because even in absence of express agreement, the two obligations are
incompatible with each other.
2. delegacion
- creditor accepts a third person to take place of the original debtor at instance of orig debtor
- all parties: new debtor, old debtor and creditor must agree
- initiative comes from ORIGINAL DEBTOR
- old debtor must be released from obligation, otherwise NO DELEGACION
EXAMPLE
Jojo tells Jaja that Jiji will pay his debt of P10,000 tomorrow. Jaja agreed.
There is NO delegacion here unless Jojo asked Jaja to release him from his debt upon Jiji paid his
debt.
Jiji tells Jaja that she will pay for Jojo’s P10,000 debt and she shall release Jojo from his obligation
thereon. Jaja agreed.
There is expromission.
ART. 1294 effect of new debtor’s insolvency or non -fulfillment of obligation in expromission
- general rule: does not revive obligation of the original debtor
Jojo, thru fraud committed by Jeje, signed a promissory note that he will pay a sum of P50,000 on June 1.
Later, it was agreed that Jojo will deliver his second-hand car instead.
The original obligation is VOIDABLE, thus the second contract is valid.
If original obligation is under a suspensive or resolutory condition, new condition shall be under the
same condition, unless otherwise stipulated.
Subrogation – transfer of third person ALL the rights appertaining to the creditor, including right to
proceed against guarantors, subject to legal provision or any modification that may be agreed upon.
subrogee – third person
subroger – creditor
kinds of subrogation
1. conventional – express agreements of the original parties and the third person
must be clearly established in order to take effect
2. legal – by operation of law
not presumed except in cases expressly stated by law
- new creditor has all the rights that old creditor had been exercised
- the original creditor remains the creditor up to extent of the balance of the debt
- in case debtor is insolvent, he is given a preferential right to recover the remainder against the
new creditor
EXAMPLE
Jojo is indebted to Jaja P10,000. Jeje pays Jaja P5,000 with consent of Jojo.
Here two credits subsist. In case of insolvency of Jojo, Jaja is preferred to Jeje. Thus, Jaja shall be
subrogated ahead of Jeje.