ELS: Obli Con

Extinguishment of Obligation

Copy of Rae Gammad 1

Extinguishment of Obligation
Art. 1231. Obligations are extinguished:
Section I. Payment or Performance
Payment not only the delivery of money but includes the
performance of an obligation in any other manner. In law,
payment and performance are synonymous.
According to the general rule partial or irregular
performance will not produce the extinguishment of an
obligation.
Exception to the general rule:
If substantially performed in good faith.
The obligor is allowed is allowed to recover the payment
less the damages suffered by the obligee.
Obligee accepts the performance, knowing its
incompleteness or irregularity.
The obligor is not liable for damages, because the obligation
is deemed fully complied.
Payment of third person
Payment or performance by any person not incapacitated is
recognized. Even has no interest in the obligation
If made without the knowledge or against the will of the debtor he
can recover only upto the amount the debtor has benefited.
If made with the knowledge of the debtor he shall have the rights of
reimbursement and subrogation.

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Extinguishment of Obligation

Copy of Rae Gammad 2

Subrogation and reimbursement distinguished

Subrogation - the payor acquires all the rights which the creditor
could have exercised pertaining to the credit.
Reimbursement can recover only up to amount the debtor
benefited.
Validity of Payment to an Incapacitated Person
is not valid unless the person kept the thing paid or
delivered, or was benefited by the payment.
Ex: Mary is indebted to Claire, a minor, in the amount of
P200. On maturity of the debt, Mary pays Claire P200.
Claire deposits the amount to the bank; she does not spend
it. The payment is valid.
Payment to a Third Person in Possession of Credit
if made in good faith shall release the debtor.
Ex: Mary executed a negotiable promissory note for P10,000
in favor of Claire. On maturity date, Carla, a third person,
presented the note, properly indorsed, and demanded
payment of the same. The payment released her, because she
paid in good faith to a person in possession of the credit
whom the law presumes to be the owner of the note
properly indorsed.
Special Forms of Payment:
Dation in Payment
Conveyance of ownership of a thing as an accepted
equivalent of performance. Debtor alienates property in
payment of a debt in money.

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Extinguishment of Obligation

Copy of Rae Gammad 3

The creditor cannot demand a thing of superior quality.

Neither can the debtor deliver a thing of inferior quality.
Application of Payment
Designation of debt when there are several debts to a
creditor.
Principally, it is the debtor who can make an application of
payment. Failure of the debtor to make an application
automatically allows the creditor to make an application. If both
parties fail to make an application, the More Burdensome Rule
will apply.
Payment must be applied first to the interest and whatever
balance is left can be credited to the principal.
Payment by Cession
Debtor abandons property in favor of the creditor so that
the latter may dispose of the property in order to apply the same
to the debts,
Voluntary Cession requires the consent of all the creditors
Ex: Pnoy is indebted to Pablo, Diego and Juan in the
amount of P10,000. He has more debts than assets.
because Pnoy cannot pay them all in full amount, Pnoy
may assign to Pablo, Diego, and Juan his properties
valued at P6,000 so they can sell the same and the net
proceeds applied in payment of his debt.
Tender of Payment and Consignation
Tender of payment is an act on the part of the debtor to
offer to the creditor the thing or amount due.
Consignation is the act of depositing the thing due or
placing the same under judicial authority when the creditor
refuses to accept payment without just cause.

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Extinguishment of Obligation

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Ex: Billy was indebted to Vhong. On maturity of the

obligation, Billy offered to pay Vhong the amount of the debt
but without justified reason refused to accept the payment.
Billy then notified Vhong, thus if Vhong persist in not
accepting the payment, Billy will go to the proper court.
Proved to the court that there was a valid tender of payment
and that, Vhong, the creditor, unjustly refused to accept the
payment and that, there was previous notice consignation.
The clerk accepted the payment.
Section II. Loss of the Thing Due
The thing is considered 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. As a rule, the loss of the thing
extinguishes the obligation to give. This is equivalent to
impossibility of obligations to do.
Impossibility of Performance
Physical Impossibility
Ex: Ely obliged himself to make a statue of Raimund. After
the obligation was constituted, Elys hands were amputated
by reason of an accident. Because Elys obligation cannot be
performed, his obligation to Raimund is thereby
extinguished.
Legal Impossibility
Ex: Marcus agreed to construct a commercial building for
Buddy. The government refused to sign a building permit
because the area has been declared as a residential zone. The
obligation therefore was extinguished.
Loss of a Generic Thing
Debtor can still be compelled to deliver a thing of a same
kind.

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Extinguishment of Obligation

Copy of Rae Gammad 5

Ex: Herbert obliges himself to deliver to Joseph a cow. The

cow which Herbert intended to deliver to Joseph died of
sickness. In this case, Herberts obligation to deliver a cow is
not extinguished because a cow is generic, he is still obliged
to deliver any of the species.
Loss of a Specific Thing
If the loss is due to fortuitous event:
a. Due to the fault of the debtor not extinguished
b. Not due to the fault of the debtor - extinguished
Ex: Herbert obliges himself to deliver to Joseph his dog
named Labuyo. Before the agreed date of delivery,
Labuyo dies without Herberts fault. In such case, the
obligation is extinguished.
Section III. Condonation or Remission of Debt
Gratuitous abandonment by the creditor of his right
against the debtor.
Kinds of remission
Complete Remission
Ex: Habagat was indebted to Maring in the of P1,000. On the
due date of the obligation, Habagat, offered to
pay his debt to Maring but the latter told Habagat that
he was renouncing his right to collect the debt as
he won in the sweepstakes.
Partial Remission
Ex: In the same example above, suppose Habagat offered to
pay the whole amount of P1,000 to Maring but
latter accepted on P500 and renounced the balance.
Inofficious remission

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Extinguishment of Obligation

Copy of Rae Gammad 6

-No one can give more than that which he can give by will,
otherwise, the excess shall be inofficious.
Ex: A, a widower, died survived by his only heir, B, his son.
In his last will and testament, A renounced a debt
due him from X, in the amount of P50,000. The debt
constituted his only estate. Since A could only dispose
of one-half of his estate as the other half belong to his
heir, B, as his legitimate child, the renunciation was
inofficious and should be reduced.
Case Document found in Possession of Debtor
-Ordinarily, the document evidencing the debt is in the
possession of the creditor. If later the document is found in the
hand of the debtor, the presumption is that it was voluntarily
delivered by the creditor.
Ex: Habagat owes Maring P2,000 evidenced by promissory
note. Later on, the promissory note was found in
possession of Habagat. The presumption of law is that the
obligation has been remitted by Maring.
Section IV. Confusion or Merger of Rights
The characters of debtor and creditor meet in one and the
same person with respect to the same obligation.
Confusion in a joint obligation
What is extinguished is only the share of that debtor in the
obligation.
Ex: Gomez and Burgos are jointly indebted to Zamora in the
amount of P1000. If merger of confusion takes place between
Gomez and Zamora, the Gomezs obligation of P500 will be
extinguished. However, the indebtedness of Burgos to
Zamora will remain.

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Extinguishment of Obligation

Copy of Rae Gammad 7

Confusion in a solidary obligation

The obligation is extinguished
Ex: In the same example above, if the obligation of Gomez
and Burgos is solidary, the indorsement to Gomez
extinguishes the entire obligation of P1000. Gomez can
demand reimbursement from Burgos.
Section V. - Compensation
Two persons or two parties are debtors and creditors of each
other.
Kinds of Compensation
Legal by operation of law
Conventional by agreement of the parties
Facultative only one party can claim compensation
Judicial declared by court
Compensation in General
Ex: Mario is indebted to Luigi in the amount of P100. On the
other hand, Luigi is also indebted to Mario in the amount of
P100. Both debts are due. Compensation will take place.
Requisites of Compensation:
Obligors must be bound principally
Ex: Mario is indebted to Luigi in the amount of P100. In
another obligation, Mario is the creditor of Princess in the
amount of P100 with Luigi as guarantor. Compensation will
not take place because Mario and Luigi are not bound
principally to each other.
Debt consist in a sum of money

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Extinguishment of Obligation

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Ex: Mario owes Luigi the amount of P100. Luigi is under

obligation to Mario to render his professional services. No
compensation can take place because the second debt does
not consist in a sum of money.
Two debts be due
Ex: Mario owed Luigi P100 payable on Sept. 1 2013. On the
other hand, Luigi owed Mario also P100 due Sept. 15 2013. If
on Sept 16 2013, both debts are still unpaid, then
compensation can take place.
No retention or controversy commenced by third person
Ex: Mario is indebted to Luigi. Luigi is also indebted to
Mario. Before both debts fall due, Princess secures an order
from court notifying Mario not to pay Luigi as she (Princess)
claims right to the said amount.
Exception to the General Rule
The guarantor may set up by way of compensation what the
creditor owes his principal debtor
Total Compensation
Ex: A owed B P1000 due on Sept 1 2013. But B also owed A
P1000 due on the same date
Partial Compensation
Ex: A owed B P1000. But B only owes A P500, then partial
payment took place, A is still liable to pay B P500
Meaning of Depositum
Is a contract where one person receives a thing belonging
to another, with the obligation of safe keeping it and of returning
the same.

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Extinguishment of Obligation

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Meaning of Commodatum
Is a gratuitous contract where one of the parties to another,
something not consumable so that the latter may use the same for
a certain time and return it.
Section VI. Novation
Not an absolute mode of extinguishment, it is only relative
because it plays a dual role. While it extinguishes an obligation, it
also creates a new one.
Novation may either be:
Extinctive old obligation is extinguished and new one is
created
Modification no extinguishment of obligation. It simply
modified the obligation
Three ways by which novation may take place:
Changing the object or any other principal conditions of the
obligation
Ex: S agreed to deliver B a television set. Later, they enter
into another contract whereby, instead of delivering a
television set, he will deliver air conditioner. The obligation
to deliver a television set is extinguished,
Substitution of the person of the debtor
Expromision when a third person of his own accord and
even without the knowledge of the original
debtor assumes the obligation, with the consent of the
creditor
Delegacion when the debtor asks the creditor to accept a
third person to take his place as obligor

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Extinguishment of Obligation

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Subrogating a third person into the right of the creditor

Conventional when it takes place by express agreement
of the original parties and the third person
Legal when it takes place without agreement but by
operation of law
Insolvency of the substitute
Expromision the old obligation will not be revived
Delegacion if at the time of substitution, the new debtor is
already insolvent.