Professional Documents
Culture Documents
OBLIGATION
PAYMENT OR
PERFORMANCE
1232
DEFINITION OF PAYMENT
Payment does not consist only of payment
through money.
Payment also refers to the delivery of money,
giving of a thing, doing of an act and not
doing of an act.
PAYMENT
OR
PERFORMANCE
Elements of Payment/Performance:
1. Persons/Parties
2. Object/Thing
3. Cause
4. Mode of Payment
5. Place and time that payment
should be made
6. Imputation of expenses
7. Other parts to modify the same
PAYMENT
OR
PERFORMANCE
BURDEN OF PROOF:
General rule: DEBTOR
Exception: Once the debtor introduces the
fact of extinguishment, it is shifted to the
CREDITOR
PAYMENT
OR
PERFORMANCE
1233
COMPLETENESS OF PAYMENT
Complete delivery is required to effect
payment/performance.
General rule: Delivery alone cannot effect
payment/performance.
Exception: Those provided by the this Code
(1234 and 1235)
PAYMENT
OR
PERFORMANCE
PAYMENT
OR
PERFORMANCE
1234
SUBSTANTIAL PERFORMANCE IN GOOD FAITH
This is the first exception to Art. 1233.
Requisites:
1. There must be substantial performance (breach is
not compelling enough for creditor to rescind the
contract; the oblige has benefited)
2. Good faith of the obligor
The damages contemplated in this article are
compensation for the relative breach suffered by
the oblige.
PAYMENT
OR
PERFORMANCE
1235
Requisites:
1. K n o w l e d g e o f i n c o m p l e t e n e s s i n t h e
performance/payment
2. Acceptance of such without objection or protest
*no form/time for the protest
PAYMENT
OR
PERFORMANCE
1236
PAYMENT BY A THIRD PERSON
General rule: The creditor is not bound to accept
the payment of a third person
Exception: If it is stated in the agreement that he
can make payment
Persons from whom the creditor must accept
payment:
1. Debtor
2. Persons with interest in the obligation
3. Third persons, if allowed by stipulation, even
without interest
PAYMENT
OR
PERFORMANCE
1236
PAYMENT BY A THIRD PERSON
Second Paragraph
The third person who paid for the debt of the original
debtor can demand such debtor to pay him, except when
the debtor has no knowledge or against his will. The
presence of this condition would entitle the third person
the reimbursement only insofar to the payment that has
been beneficial to the debtor. If there is knowledge, the
third person shall have the rights of reimbursement and
subrogation.
There must be an existing creditor-debtor relationship
between the person on whose behalf the payment was
made and the payee.
PAYMENT
OR
PERFORMANCE
1237
NON-SUBROGATION OF RIGHTS
If paid without the knowledge or against the will of the
debtor, the third person is not entitled to subrogation and
therefore, cannot compel the creditor to subrogate him
his accessory rights of mortgage, guaranty or penalty,
even with the consent of the creditor.
If paid with knowledge, he is entitled to subrogation.
Subrogation can only take place with the consent of the
debtor.
There must be an existing creditor-debtor relationship
between the person on whose behalf the payment was
made and the payee.
PAYMENT
OR
PERFORMANCE
1238
PAYMENT MADE AS A DONATION
The payment of a third person who does not intend to be
reimbursed is considered as donation and shall require
the consent of the DEBTOR.
HOWEVER, such payment, even without the consent of
the DEBTOR, shall be valid as to the creditor who
received the payment and would extinguish the
obligation.
PAYMENT
OR
PERFORMANCE
1239
PAYMENT BY AN INCAPACITATED PERSON
General rule: Payments made by persons who do not have
(1) FREE DISPOSAL OF THE THING (must not have any
lien or encumbrance attached to it) and;
(2) CAPACITY TO ALIENATE (capacity to enter into
contracts) shall be invalid
Exception: Article 1427; the creditor cannot be compelled
to accept payment where the person paying has no
capacity to make it
PAYMENT
OR
PERFORMANCE
1240
TO WHOM PAYMENT MUST BE MADE
(a) To the person in whose favor the obligation has been
constituted (the creditor);
[NOTE: This refers to the creditors at the time of payment]
PAYMENT
OR
PERFORMANCE
1241
PAYMENT
OR
PERFORMANCE
1241
PAYMENT
OR
PERFORMANCE
1241
PAYMENT
OR
PERFORMANCE
1241
PAYMENT
OR
PERFORMANCE
1242
PAYMENT
OR
PERFORMANCE
1243
WHEN PAYMENT TO CREDITOR NOT VALID
Garnishment
The proceeding by which a debtors creditor is
subjected to the payment of his own debt to another.
Interpleader
Action in which a certain person in possession of certain
property wants claimants to litigate among themselves for
the same.
Injunction
It is a judicial process by virtue of which a person is
generally ordered to refrain from doing something.
PAYMENT
OR
PERFORMANCE
1244
PAYMENT
OR
PERFORMANCE
1244
VERY PRESTATION DUE MUST BE COMPLIED WITH
General rule : Debtor Cannot Compel Creditor to Accept
a Different Object
Exception: Instances When Art. 1244 Does Not Apply
(a) In case of facultative obligations;
(b) In case there is another agreement resulting in either:
1.
2.
PAYMENT
OR
PERFORMANCE
1245
SPECIAL FORMS OF PAYMENT
Dation in Payment
It is that mode of extinguishing an obligation whereby the
debtor alienates in favor of the creditor, property for the
satisfaction of monetary debt.
Dation in payment is governed by the law of sales
because it is a transfer of ownership.
PAYMENT
OR
PERFORMANCE
1245
SPECIAL FORMS OF PAYMENT
Conditions Under Which a Dation in Payment Would Be
Valid
(a) If the creditor consents
(b) If the dation in payment will not prejudice the other
creditors,
(c) If the debtor is not judicially declared insolvent
PAYMENT
OR
PERFORMANCE
1246
RULE ON MEDIUM QUALITY
Obligation to Give Generic Things
This Article gives a principle of equity in that it applies
justice in a case where there is lack of precise declaration
in the obligation.
Waiver
If the contract does not specify the quality
(a) The creditor cannot demand a thing of superior
quality
(b) The debtor cannot deliver a thing of inferior quality
PAYMENT
OR
PERFORMANCE
1247
DEBTOR PAYS EXTRAJUDICIAL EXPENSES
General Rule:
The debtor has to pay for the extrajudicial expenses
incurred during the payment. Reason: By express
provision of law. Reason for the law: It is the debtor who
benefits primarily, since his obligation is thus
extinguished.
Exception: When there is a stipulation to the contrary.
Judicial Costs are determined by the discretion of the
court unless otherwise provided in the rules.
Generally No costs against the Government
PAYMENT
OR
PERFORMANCE
1247
DEBTOR PAYS EXTRAJUDICIAL EXPENSES
General Rule:
The debtor has to pay for the extrajudicial expenses
incurred during the payment. Reason: By express
provision of law. Reason for the law: It is the debtor who
benefits primarily, since his obligation is thus
extinguished.
Exception: When there is a stipulation to the contrary.
Judicial Costs are determined by the discretion of the
court unless otherwise provided in the rules.
Generally No costs against the Government
PAYMENT
OR
PERFORMANCE
1248
PAYMENT
OR
PERFORMANCE
1248
PAYMENT
OR
PERFORMANCE
1249
LEGAL TENDER
First Paragraph:
General rule: Payment of debts in money payable in Philippine
Currency
Exception: Express stipulation in the contract
PAYMENT
OR
PERFORMANCE
1249
LEGAL TENDER
Legal tender in the Philippines
PAYMENT
OR
PERFORMANCE
2.
3.
Promissory notes, checks, bills of exchange, and other commercial documents are not legal
tender.
Creditor may accept them, without the acceptance producing the effect of payment.
Right to redeem is not an obligation but the exercise of a right; nor is it intended to discharge a
pre-existing debt.
Effect on obligation
General rule: Payment by means of mercantile document does not extinguish the obligation.
Exception:
i.
Until they have been cashed
ii.
Unless they have been impaired through the fault of the creditor.
1250
MEANING OF INFLATION AND DEFLATION
Inflation
Deflation
PAYMENT
OR
PERFORMANCE
1250
MEANING OF INFLATION AND DEFLATION
Requisites:
PAYMENT
OR
PERFORMANCE
1250
Devaluation and Depreciation distinguished
Devaluation
Depreciation
PAYMENT
OR
PERFORMANCE
1251
PLACE WHERE OBLIGATION SHALL BE PAID
1. If there is a stipulation, payment shall be made in the place
designated.
2. If there is no stipulation and the thing to be delivered is
specific, payment shall be made at the place where the thing
was, at the perfection of the contract.
3. If there is no stipulation and the thing to be delivered is
generic, the place of payment shall be the domicile of the debtor.
Creditor bears the expenses.
PAYMENT
OR
PERFORMANCE
1252
PAYMENT
OR
PERFORMANCE
SUBSECTION 1. -
Application of
Payment
1252
REQUISITES:
1. One debtor and one creditor
2. Two or more debts
3. Debts must be of the same kind
4. Debts to which payment made by the debtor has
been applies must be due
5. Payment must not be sufficient to cover all the
debts
PAYMENT
OR
PERFORMANCE
SUBSECTION 1. -
Application of
Payment
1252
PAYMENT
OR
PERFORMANCE
SUBSECTION 1. -
Application of
Payment
1253
INTEREST ERNED PAID AHEAD OF PRINCIPAL
Debtor cannot choose to credit his payment to the
principal before the interest is paid.
Payment must be first applied first to the interest
and whatever balance is left, must be credited to
the principal.
PAYMENT
OR
PERFORMANCE
SUBSECTION 1. -
Application of
Payment
1254
2.
PAYMENT
OR
PERFORMANCE
SUBSECTION 1. -
Application of
Payment
1254
4.
Instances
PAYMENT
OR
PERFORMANCE
SUBSECTION 1. -
Application of
Payment
1255
MEANING OF PAYMENT BY CESSION
It 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 as payment.
PAYMENT
OR
PERFORMANCE
SUBSECTION 2.
Payment by Cession
1255
MEANING OF PAYMENT BY CESSION
Requisites:
1.
2.
3.
4.
PAYMENT
OR
PERFORMANCE
SUBSECTION 2.
Payment by Cession
Cession!
Several!creditors!
The! debtor! is! insolvent! at! the! time! of!
assignment!
Extends! to! all! the! property! of! the! debtor!
subject!to!execution!
Creditors!only!require!the!right!to!sell!the!
thing! and! apply! the! proceeds! to! their!
credits!
Not!an!act!of!novation!
1256
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1256
Creditor is absent/unknown.
Creditor is incapacitate to receive at time it is due.
Creditor refused give a receipt, w/o just cause.
2 or more persons claim the right to collect.
Title of obligation lost.
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1257
Prior notice to persons interested required
Absence of prior notice to the person interested in the
fulfillment of the obligation, the consignation shall be
void.
The purpose of notice is to give the creditor a chance to
reflect on his previous refusal to accept payment
considering that the expenses of consignation shall be
charged against him,
To amount to a valid payment, consignation must also
comply with the provisions which regulate payment.
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1258
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1259
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1259
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1260
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
1261
PAYMENT
OR
PERFORMANCE
SUBSECTION 3. Tender of Payment
and Consignation
Loss of the
Thing Due
1262
Loss of the
Thing Due
1262
Loss of the
Thing Due
1263
Loss of the
Thing Due
1264
Loss of the
Thing Due
1265
Loss of the
Thing Due
1266
Requisites:
Loss of the
Thing Due
1266
Two kinds of impossibility
1.
Physical impossibility Personal qualifications of debtor are
involved.
a. Example Death, physical incapacity
2.
a.
Loss of the
Thing Due
1267
EFFEECT OF DIFFICULTY OF PERFORMANCE
Service becomes difficult (as to be manifestly beyond contemplation of
parties) = obligor may be released therefrom in whole or in part.
Doctrine of unforeseen events
Requisites:
1.
Event or change in circumstances could not have been foreseen
at the time of the execution of the contract
2.
Makes the performance of the contract extremely difficult but
not impossible
3.
Event must not be due to the act of any of the parties
4.
Contract is for a future prestation
Loss of the
Thing Due
1267
EFFEECT OF DIFFICULTY OF PERFORMANCE
Service = performance of an obligation
Modification of contract not covered court shall either release or not
release the obligor from a contract and CANNOT MODIFY the terms
Loss of the
Thing Due
1268
Loss of the
Thing Due
1269
Loss of the
Thing Due
Condonation or
Remission of Debt
CONDONATION OR REMISSION
1270
is essential 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 condonations shall, furthermore comply with the
FORMS OF DONATIONS
Condonation or
Remission
Of Debt
Condonation or
Remission
Of Debt
Condonation or
Remission
Of Debt
Condonation or
Remission
Of Debt
Condonation or
Remission
Of Debt
Express when it is made either verbally or in writing; if inter vivos, shall comply with
the forms of donation [1271] and of a will or codicil, if mortis causa
REQUISITES
1.
2.
3.
4.
5.
It must be gratuitous;
It must be accepted by the obligor;
The parties must have capacity;
It must not be inofficious; and
If made expressly, it must comply with the forms of
donation
1271
Condonation or
Remission
Of Debt
1272
Joint Obliga,on
Solidary Obliga,on
Condonation or
Remission
Of Debt
1273
EFFECT
Principal Obliga,on
Accessory Obliga,on
Condonation or
Remission
Of Debt
1274
Condonation or
Remission
Of Debt
Confusion or
Merger of Rights
Confusion or
Merger of
Rights
Illustration
A
Debtor
IN GENERAL
OWES 3,000
Confusion or
Merger of
Rights
Creditor
Z
3rd
person
Confusion or
Merger of
Rights
Illustration
Debtor
AA
IN GENERAL
OWES 3,000
Creditor
Illustration
Debtor
IN GENERAL
OWES 3,000
Confusion or
Merger of
Rights
Creditor
3rd
person
A X
Illustration
IN CASE OF JOINT OBLIGATIONS (Article 1277)
A, B, C JOINTLY owes 3,000 to X.
X endorses the promissory note to Y
Y endorse the promissory note to A
Held:
As shares is extinguished, but B and Cs shares remains.
Thus, because the credit merges in A, B and C now owes A
(1,000 pesos each).
Confusion or
Merger of
Rights
Illustration
IN CASE OF SOLIDARY OBLIGATIONS (Article 1215;
par. 2 of 1217)
A, B, C SOLIDARILY owes 3,000 to X.
X endorse the promissory note to Y
Y endorse the promissory note to A
Held:
Notice that A, who is a debtor becomes a creditor.
There is merger or confusion of rights; hence, being a solidary
obligation, it is extinguished, but A may claim reimbursement from B
and C.
Confusion or
Merger of
Rights
1276
Confusion in principal or accessory obligation
Accessory follows the principal (the guaranty being
considered the accessory obligation); hence, if
there is merger with respect to the principal debt,
the guaranty is extinguished
Note: Confusion which takes place in the person of
any of the latter does not extinguish the
obligation.
Confusion or
Merger of
Rights
Illustra,on
Debtor
AA
Guarantor
OWES 3,000
Creditor
Z
Merger
of
Principal
Debtor
or
Creditor
Illustra,on
Debtor
Guarantor
OWES 3,000
Creditor
3rd
person
A X
Illustra,on
Debtor
Guarantor
OWES 3,000
Creditor
Z
Merger
of
Principal
Debtor
or
Creditor
Illustra,on
Debtor
Guarantor
OWES 3,000
Creditor
3rd
person
GX
Confusion or
Merger of
Rights
Held:
Both A and B do not have any more right to the property,
but A may claim reimbursement for the improvements he
introduced. (Testate Estate of Mota v. Serra)
Confusion or
Merger of
Rights
Compensation
Effect of compensation
Compensation
WHY COMPENSATION?
Prevention of unnecessary suits and payments thru mutual
extinction by operation of law of concurring debts (Nadela
vs Engineering and Construction Corporation)
1.
Compensation as a specie of abbreviated payment
(facility of
2. payment and guaranty for the effectiveness of credit);
3.
As a more convenient and less expensive realization
of two payments (simplified payment)
4.
Economic utility for credit and for saving the use of
money in transactions, simplifying accounting
5. Guaranty against fraud
Compensation
Legal
this
takes
place
by
opera,on
of
law,
and
need
not
be
pleaded
(1279,
1290).
Voluntary
or
conven,onal
this
is
due
to
the
agreement
of
the
par,es
EVEN
IN
THE
ABSENCE
OF
SOME
REQUIREMENTS
(as
stated
in
Art.1279)
(Art.
1282)
Total
if
both
obliga,ons
are
completely
ex,nguished
because
they
are
of
the
same
or
equal
amounts
(1281).
Par,al
when
a
balance
remains
(hence,
there
is
a
par,al
compensa,on
in
the
larger
of
the
two
debts)
Compensation
Compensation
FIRST REQUISITE:
That each of the obligors be bound principally, and that he be at
the same time a principal creditor of the other.
(1) That there must be a relationship of debtor and creditor
(2) There must be two debts and two credits
(3) They must be generally be bound as principals (not in their
representative capacity)
Example: G, as guardian for W, is a creditor of D. D in turn is a
creditor of G who owes him a personal debt. There can be NO
compensation because it is W who is the real creditor, not G
(Escano v. Heirs of Escano) (PARAS 467)
Compensation
SECOND REQUISITE:
That both debts consist in a SUM OF MONEY, or if the things
due are CONSUMABLE (FUNGIBLE), they be of the same kind,
and also of the same quality if the latter has been stated.
Consumable or Fungible
T h e w o rd c o n s u m a b l e m u s t b e t a k e n t o m e a n
fungible (susceptible of substitution, if such be the intention)
(PARAS 468). A thing may be fungible (can be substituted) but
not consumable.
Example: A owes B a fountain pen (generic) and B owes A also a fountain
pen (generic). Here, compensation may happen since both items are
fungible (although not consumable). Had the fountain pen of A be a
specific thing, there can be no compensation. Similarly, 10 sacks of rice is
not the same as 10 sacks of corn.
Compensation
THIRD REQUISITE:
That both debts are due
Statutory Construction
Due means that the period has arrived, or the condition has
been fulfilled. On the other hand, demandable may refer to
the fact that neither of the debts has prescribed, or that the
obligation is not invalid or illegal. Natural obligations are not
legally demandable
A debt that has prescribed is no longer demandable and
consequently cannot be compensated (Montilla v. Augustinian
Corp.)
Compensation
FOURTH REQUISITE:
That they be LIQUIDATED and DEMANDABLE
Liquidated
These are debts where the exact amount has already been
determined, though not necessarily in figures since capacity of
being arrived at by simple arithmetical processes would be
enough.
If damages are asked for, and the amount is disputed, the debt
cannot be said to be already a liquidated one.
Once
liquidated by a judgment, however, a set-off asked for in a
counterclaim would be proper
Damages cannot be recovered if ones claim is still subject to
litigation (Salinap v. Judge del Rosario) (PARAS 469)
Compensation
FIFTH REQUISITE:
That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to
the debtor.
RULE ON TAXES:
GENERAL RULE - taxes, being obligations of public interest, and
governed by special laws, are not subject to set-off or
compensation. The government and the tax payer are not
creditors and debtors of each other. Debts are due to the
government in its corporate capacity while taxes are due to its
sovereign capacity.
EXCEPTION where both the claims of the government and the
taxpayer against each other have already become due and
demandable as well as fully liquidated .
Compensation
FIFTH REQUISITE:
That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to
the debtor.
RULE ON TAXES:
GENERAL RULE - taxes, being obligations of public interest, and
governed by special laws, are not subject to set-off or
compensation. The government and the tax payer are not
creditors and debtors of each other. Debts are due to the
government in its corporate capacity while taxes are due to its
sovereign capacity.
EXCEPTION where both the claims of the government and the
taxpayer against each other have already become due and
demandable as well as fully liquidated .
Compensation
NEGATIVE REQUISITES:
(1)
Neither of the debts must there be any retention or controversy commenced by
third persons and communicated in due time to the debtor. Thus, there can be no
legal compensation when ones claim against another is still the subject of court
litigation.
(2)
There must have been NO waiver of the compensation. Although this does not
mean that a waiver is precluded since this would not be contrary to public policy.
(3)
The compensation of the debts must not have been prohibited by law. The
compensation of the following are prohibited:
a. debts arising from a depositum (except bank deposits, which are by law
considered as loans to the bank) (Art. 1287)
b. debts arising from the obligations of a depository (Art. 1287)
c. debts arising from the obligations of a bailee in commodatum (like the
borrower of a bicycle wherein the borrowing is without compensation) (Art. 1287)d.
debts arising from a claim for future support due by gratuitous title (Art. 1287)
e. debts consisting in civil liability arising from a penal offense (Art. 1287)
Compensation
Compensation
It requires:
Compensation
Compensation
Compensation
Compensation
When one of the debts arises from a depositum or from the obligations of
a depositary or of a bailee in a commodatum (1287, par 1)
Commodatum:
Compensation
Compensation
Compensation
Compensation
Novation
DEFINITION
It is the total or partial extinction of an obligation by the
creation of a new obligation which substitutes it.
What sets it apart from other forms of extinguishment:
juridical act with dual function
Remember: Novation is NEVER presumed.
Novation
Expressly declared
Novation
Requisites: [VIEN]
1. Previous valid obligation
2. Intent to novate (debtor must be released
from the previous obligation)
3. Extinguishment of the old obligation
4. Validity of the new obligation
Novation
2.
3.
4.
5.
Exception:
if the old obligation was RATIFIED BEFORE NOVATION, then the NEW obligation is VALID
If the old obligation was VOIDABLE and there was novation, the NEW obligation is VALID even if NOT
RATIFIED, but VOIDABLE at the instance of the debtor.
If new obligation is VOID,
Exception: Unless parties intended the extinguishment of the old obligation in any event (Art 1297)
If new obligation is VOIDABLE,
Exception: But if new obligation is ANNULLED and set aside, then the original obligation SUBSIST (Ratio:
valid until annulled)
If the original obligation is subject to a SUSPENSIVE or RESOLUTORY condition
GR: new obligation will also be subject to the SAME suspensive or resolutory condition
Novation
Novation
Expromision
Delegacion
Can the creditor go still go after the old debtor in certain cases?
a.
If the old debtor did not initiate the novation - Art. 1294 - applies to Expromision
i.
Rule is the creditor CANNOT go after the old debtor in case of insolvency or non-fulfillment of
the new debtor if the substitution is without the knowledge or against the will of the debtor
ii.
If it was with the knowledge, the creditor still cannot be held liable for the insolvency or nonfulfillment of the new debtor since he would be placed in a worse position than in delegacion
(where the ground for his liability is only for insolvency of the new debtor).
b.
If the old debtor initiatied the novation - Art. 1295 - applies to Delegacion
i.
GR: Creditor cannot hold the old debtor liable in case of insolvency of new debtor
ii.
Exception: If creditor can prove either:
i.
Insolvency was already existing and of public knowledge at the time of the substitution;
OR
ii.
Insolvency was already existing and known to the debtor at the time of the substitution
Novation
Novation
Novation
General Effects:
1. Extinguishment of old obligation and creation of a new one
2. Extinguishment of accessory obligations,
Novation
Jurisprudence:
> Situations that RESULT to novation according to cases assigned:
Compromise agreements after a final and executory
judgment of trial court (Dormitorio vs Fernandez)
Novation
Jurisprudence:
> Situations that DO NOT result to novation according to cases
assigned:
Novation