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MODES OF EXTINGUISHING AN OBLIGATION

I. Meaning
-Refers to situations or incidents which would terminate or end an oblig
atio
II. Different Modes of Extinguishing an Obligation
A. Those Enumerated in the Law (Art. 1231) (PRC RAP MNLF)
1.Payment or Performance
2. Remission or Condonation
3. Compensation
4. Rescission
5. Annulment
6. Prescripition
7. Merger or Confusion
8. Novation
9. Loss of the Thing Due or Impossibility of performance
1O.Fulfillment of Resolutory Condition.
B. Other Modes of Extinguishing an Obligation
1. Deatth of a Party if the Obligation is PERSONAL in Character
2. Waiver
3. Arrival of the Resolutory Period
4. Mutual Dissent
5. Compromise
II. Meaning of Each Mode of Estinguishing an Obligation
1. Payment or Performance
- Means not only the delivery or giving of money but the performance of the obli
gation in any manner whatsoever. Hence, it is synonymous to "performance"
ILLUSTRATION: Miss Tina Guan owes Miss Lina P. Tan P500 due on February 29, 2000
. If on February 29, 200, instead of paying in money (P500), Miss Guan gave Miss
Tan her watch worth P600, the obligation to pay is extinguished by payment beca
use payment has an extended meaning and does not refer only to the giving of mon
ey.
2. Remissio or Condonation
- Thw gratuitousabandonment , by the crediior of his right (Sanchez Roman).
ILLUSTRATION: Mr. I.O Yu owes Mr. [)onut Fei P200 due on March 29, 2000. On Marc
h 29, 2000, Mr. Fei told Mr. Yu not to pay anymore the P200 and Mr. Yu replied Th
ank You. Mr. Vus obligation is extinguished by remission or condonation.
3. Compensation
- This takes place when 2 persons. in their own right, are creditors and debtors
of each other, (Art.1278).
-It is a sort of balancing (cum pondere- ' to weigh together between 2 obligatio
ns: it involves a figuarative operation of weighing 2 obligations simultaneously
in order to extinguish them to the extent in which the amount of one is covered
by the other. (4 paras, Civil Code of the Phil Page 422 1989 ed.) Citing Manres
a).
ILLUSTRATION: Miss Mau U. Tang owes Capareho P5,000 due on April 29, 2000. On
April 29, 2000. Miss Tang discovered that Mr. Capareho owes her also P5,000 due
January 29, 2000 which is not yet paid to her by Mr. Capareho. The obligation of
Miss Tang is extinguished by compensation.
4. Rescission
It is a relief to protect one of the partied or a third person from all injury a
nd damages which the contract may cause, to protect some preferential right (Aqu
ino vs. Tanedo, 39 Phil. 517). It is a form or legal remedy intended to restore
things back to their original conditions prior to the making of the contract whi
ch is defective because primarily of economic injury.
ILLUSTRATION: Mr. Sal Vaje owes Tina K. Buhan P100,000. To avoid payment, Sal tr
ansferred all his remaining properties to Miss Tina Go and declared himself inso
lvent. Should Tina later discover the said transfer, she can have it rescinded a
nd once, the transfer is rescinded. Tina K. Buhan could have the said properties
of Sal Vaje sold so that she could be paid out of its proceeds. Whatever obliga
tions created by the transfer made between Sal and Tina Go is extinguished by re
scission.
5. Annulment
- It is a legal remedy the purpose of which is to make a voidable contract void
and thus, inneffective.
ILLUSTATION: Malou Co. Deceived Nilo Co. into buying a fake gold ring for P10,00
0. Should Nilo discovered the fraud, he can have the contract of sale annulled.
Once annulled, whatever obligations created by the said contract of sale are ext
inguished by annulment.
6. Prescription
- Extinguishments of obligations thru lapse of time.
The law provides for a time limit within which a party can sue in court to enfor
ce an obligation. If the said party does not Sue within the period provided for
by law, he can no longerr sue because the obligation by then is alreatly extingu
ished by prescription.
ILLUSTRATION: Mr. Cascasero drove his car recklessly and injure Mr. Sugatan who
was then crossing the street. If the incident happened on January 1, 2000, Mr. S
ugatan has 4 years counting from January 1, 2000 within from January 1, 2000, w
ithin which to recover damages against Mr. Cascasero by filing a suit in court.
If Mr. Sugatan delays the filing if the case and the 4 year period elapses, he c
an no longer sue in court because Mr. Cascasero's obligation to pay damages aris
ing from quasi-delict is already extinguished by prescription. (See Art. 1146).
PRESCRIPTIVE PERIODS - Examples:
Obligations arising from
a. Written contract such as loan - 10 years from the time the right of action ac
crues ( Art. 1144)
b. Verbal contract - 6 years
c. Quasi - Contract - 6 years
d. Defamation - 1 year
e. Obligation created by law - 10 years
7. Merger
The meeting in one and the same person of the qualities of creditor and debtor wi
th respect to one and same obligation. (Sanchez. Roman). This will happen if the
same person becomes the creditor and debtor at the same time over one and the s
ame debt.
ILLUSTRATION: Millo Nario contracted the services of Mr. Amorsolo to paint his m
ansion. Before the painting job could be completed. Millo had a sroke and died.
After Millos death, Mr. Amorsolo discovered that Millo gave to him the said mansi
on as inheritance. The obligation to paint is extinguished by merger because Mr.
Amorsolo would now be painting his own house.
8. Novation
- The substitution or changes of an obligation by another, which extinguishes or
modifies the first, either changing its object or principal condition, or subst
ituting another in place of the debtor. or subrogating a third person in the rig
hts of the creditor. (Manresa).
- This mode of extinguishing an obligation does not totally or completely exting
uishes the obligation in a sense because the first obligation is merely replaced
by a new obligation.
IILUSTRATION: Mr. V.V. Lee called up Benny Venta to deliver one sack of corn. La
ter, after 20 minutes. Lee called up Venta again telling him not to deliver anym
ore one sack of corn and to instead deliver to him one sack of rice. The first o
bligation (to deliver 1 sack of corn) is extinguished by the second obligation (
to deliver 1 sack of rice) by novation in the form of substitution.
9. Lost of the Thing Due or Impossibility of Performance
This will happen if the specific thing is lost due to fortuitous event or thru t
he fault of the obligor. If the lost is due to the latter (Obligors fault). his o
bligation to deliver the specific thing is extinguished but he will liable to pa
y damages. If the reason for the lost is due to fortuitous event. the obIigor as
a result, is no longer liable.
ILLUSTRATION: Manny Vela sold his only car to Benny Lee. Before Manny could deli
ver the car to Benny, it was carnapped. Manny's obligation to deliver the car is
extinguished by lost of the thing due.
ILLUSTRATION: Mr. Pinotulan was contracted to run in the Asian trackfest in Bang
kok. Before the start of the trackfest, Mr. Pinotulan met an accident and his tw
o feet were amputated.
10. Fulfillment of Resolutory Condition
- This happens if the certain event (condition) to which an obligation is subjec
t to happens thereby extinguished the said obligation.
ILLUSTRATION: Mr. S.U. Porta undertook to support Benny Tay so long as he is not
yet married. Later, on February 14, 2000, Benny got married. Mr. Porta's obliga
tion to support Benny is extinguished by the fulfillment of the resolutory cond
ition.
IILUSTRATION: May Quita obliges herself to support her brother Allan Quita so l
ong as he is not yet employed. On May 29, 2000. JOLLIBEE hired Allan as one of i
ts crew, May's obligation to support Allan is extinguished.
IV. Requisites
1.) PAYMENT:
1. The one paying have free disposal of the thing due and must have capa
city to alienate it (Art. 1239).
2. The one being paid must be the person in whose favor the obligation h
as been constituted (meaning the creditor or obligee) or his successor in intere
st or any person authorized to receive it (Art. 1240)
3. The one being paid must have capacity to administer or manager his pr
operty (Ar.1241)
Exception to No.3 (Art. 1241):
a. If the person being paid kept the thing delivered.
b. Or insofar as the payment has been beneficial to him;
4. The payment must be complete (Art. 1233);
EXECPTION to No. 4:
a. In case there is substantial compliance in good faith of the obligati
on the obligor may recover less damages suffered by the obligee (Art. 1234)
b. When the obligee accpets the perfornance,, knowing its incompleteness
or irregularity, and without expressing any protest or objection (Art. 1235)
- Payment made in good faith to any person in possession of the credit shall r
elease the debtor(Art. 1241).
2) REMISSION OR CONDONATION
1. It must be gratuitous ( meaning free or without consideration);
1. That there must be a contract validly agreed upon by the parties; (Art. 1380)
2. That the contract must be rescissible as provided for under the law (See Art.
1381)
3. Taht there be no other remedy to obtain reparation for the damage. (Art. 1383
)
4. The party seeking rescission must be able to return what he is obliged to res
tore by reason of the contract; (Art 1385)
5. That the object of the contract must not legally be in the possesssion of thi
rd persons who acted in good faith, (1385)
6. That the period to file a case for rescission has not yet prescribed. (Art. 1
389)
5.) ANNULMENT
1. That the one annulling must be the injured party ( not the party responsible
for the defect);
2. That the contract sought to be annulled is voidable (meaning the defect has t
o do with consent); (Art. 1390)
3. That the action to annul has not yet prescribed (Art.1391);
4. That the defect in the contract was not ratified by any act whatsoever of the
injured party (Art. 1396)
- Consent must be intelligently, voluntarily and spontaneously given otherwise c
onsent will be defective and the contract becomes voidable, and as such, can be
annulled.
Examples of voidable contracts:
a. Contracts in which one of the parties has no capacity (unemancipated minor, i
nsane, demented, deaf -mute who do not know how to write, etc.);
b. Contracts in which consent was vitiated by mistake, violence, intimidation,
undue influence or fraud such as when a person was forced to enter into a contra
ct at gunpoint.
6.) PRESCRIPTION
1. That the law provides for a time-limit or period during which a party can sue
in court to enforce an obligation;
2. That the said period elapses without the said party suing in court.
Art. 1144. The following actions must be brought with ten years from the time th
e right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment
Art. 1145. The following actions must be commenced within years:
1. Upon an oral contract;
2. Upon a quasi-contract;
Art. 1146. The following actions must be instituted within four years;
1. Upon an injury to the right of the plantiff;
2. Upon a quasi-delict.
Art. 1147. The followinng must be brought with ten years from the time the right
of action accrues;
1. Upon a written contract:
2. Upon an obligation created by law;
3. Upon a judgment
Art.1145. The following acttions must be commended within six years;
1. Upon an oral contract;
2. Upon a quasi-0contract;
Art. 1156. The following actions must be instituted within four years;
1. Upon an injury to the right of the plantiff;
2. Upon a quasi-contract;
Art. 1147. The following action must be filled within one year;
1. For forcible entry and detainer;
2. For defamation.
7. MEGER (CONFUSION)
1. It must take place between parties who are principal debtor and creditor to e
ach other;
2. It must be COMPLETE.
8. NOVATION
1. That there be a previous and valid obligation;
2. That the parties intended to change or extinguished the said obligation;
3. That the parties must have capacity to modify to extinguish the said obligati
on;
4. That there must be an act done by the parties to change, modify or extinguish
the said obligation.
5. That such change, modification or extinguishments resulted in the creation of
NEW obligation.
9. LOST OF THE THING DUE
1. That the objects must be SPECIFIC.
2. That it was LOST due to circumstance beyond the control of the obligor (Fort
uitous Event).
3. That the loss renders it impossible for the obligor to still perform is oblig
ation.
4. That there must be no negligence, fared, delay or contravention of the tenor
of the obligation on the part of the obligor.
10. FULFILLMENT OF RESOLUTORY CONDITION
1. That the obligation is subject to a condition.
2. That the condition is resolutory in character.
3. That the condition had been fulfilled.
SPECIFIC CONCEPTS
A. Kinds of Special Payments (DCAT)
1. Dacion En Pago (Dation in Payment)
Meaning: A special form of payment wherein the debtor conveys the ownership of a
thing in favor of his creditor for the satisfaction of a debt which is payable
in money.
Requisites:
A preexisting debt to be paid in money.
The said debt is already due and demandable.
Instead of money, property is offered by the debtor for the payment of his debt.
The creditor accepts such form of payment.
2. Cession
Meaning: The assignment or abandonment of all the properties of the debtor for t
he benefit of his creditors in order that the latter may sell the same and apply
the proceed thereof to the satisfaction of their credits. (H. De Leon)
Requisites:
There must be at least be one debtor and two or more creditor.
The said debtor is insolvent.
Debtor delivers all his remaining properties to all his creditors.
His creditors sell these properties and applied the proceeds of the sale to thei
r individual credits proportionately.
3. Application of Payment
Meaning: The designation of the debt to which should be applied as payment by a
debtor who owes several debts in favor of the same creditor (Castan)
Requisites:
There must be one debtor and one creditor.
That the debtor owes the creditor several debts.
That the debts are of the same kind.
That all of them are due unless the benefit of the periods is given to the debto
r.
Payment made is not sufficient to cover all debts.
That said debt is already due.
There must be tender o f payment ("tender of payment" is the act of offering to
the creditor what is due to him together with a demand that he accepts the same
).
That the tender of payment is valid and the creditor refuses unjustifiably the t
ender of payment made.
Notice of consignation before and later, also after consignation was made.
There must be actual deposit of the thing due in court or with judicial authorit
y.
Instances when tender of payment is no longer necessary for valid consignation (
Art. 1256)
When the creditor is ABSENT or UNKNOWN or DOES NOT appear at the place of paymen
t.
When he is incapacitated to receive the payment at the time it is due.
When, without just cause, he refuse to give a receipt.
When two or more persons claim the same right to collect.
When the title of the obligation has been lost.
B. Effect of Payment if made by a Third Person (Arts. 1236 - 1238)
1. Third person, after paying, intends to be reimbursed.
*Pays with the debtor's consent (delegacion)
- The 3rd person may demand from the debtor what he has paid and compel the cred
itor to SUBROGATE him in his rights (1236-1237)
- TOTAL REIMBURSEMENT
- PLUS SUBROGATION
Pays without the debtor's knowledge against his will (expromision)
- 3rd person can only recover insofar as payment has been BENEFECIAL to the debt
or and he CANNOT compel the creditor to subrogate him in his rights (1236-1237).
"To Subrogate" - means to substitute another in the place of the creditor to who
se rights he (the other person) succeeds in relation to the debt ( Gifts, Law D
ictionary p. 203)
2. Third person, after paying does not intend to reimbursed.
The payment is considered a DONATION and must be ACCEPTED by the debtor, but in
every case the payment is VALID as to the creditor who accepted it (1238).
1. Payment must be in LEGAL TENDER (that kind of money which the debtor can lega
lly compel the creditor to accept as form of payment. P1.00 and 10 centavo coin
s are valid legal tender for amounts not exceeding P50 while 5 centavo and 1 cen
tavo coins are valid legal tender for amounts not exceeding P20.
2. Payment by way of a check or other instruments of credits are more conditiona
l payment and does not extinguish the obligation as yet. (Art. 1249)
3. An obligation o pay a debt in currency other than Philippine money is void an
d the debt is still valid and shall be paid in its equivalent Philippine money.
4. There is no obligation to pay interest f such is not writing. A verbal agreem
ent to pay interest on a loan is void.
5. Compensation shall not be proper when one of arises from DEPOSITUM or from th
e obligation of a DEPOSITORY or a bailee COMMODATUM. Neither can compensation be
set uo agains a creditor who has a claim for SUPPORT due by gratuitous title,
without prejudice to the povisions of paragraph 2 of Article 301. (Art. 1287)
6. Neither shall there be compensation if one of the debts consists in civil li
ability arising from penal offense. (Art. 1288)
7. The delivery of a private document evidencing credit, made voluntari;y by the
creditor to the debtor, implies the renunciation of the action which the former
had against the latter. (Art. 1271)
8. The renunciation of the principal debt shall extinguish the accessory obligat
ion; but the waiver of the latter shall leave the former in force (Art. 1273).