ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN
May consist of not only in the delivery of money but also the giving of a thing, the doing of an act, or not doing of an act
OBLICON— OBLICON—CHAPTER 4
1231. Obligations are extinguished:
It is the fulfillment of the prestation due, a fulfillment that extinguishes the obligation by the realization of the purposes for which it was constituted
1.
By payment or performance;
2.
By the loss of the thing due;
3.
By the condonation or remission of the debt;
4.
By the confusion or merger of rights of the creditor and the
Juridical act w/c is voluntary, licit, and made w/ the intent to extinguish an obligation
Identical to fulfillment
ELEMENTS OF PAYMENT
debtor; 5.
By compensation;
6.
By novation
1.
Persons, who may pay and to whom payment may be made;
2.
Thing or object in w/c payment must consist
Other causes of extinguishment of obligations, such as
3.
The cause thereof
annulment, rescission, fulfillment of a resolutory condition and
4.
Mode or form thereof
prescription, are governed elsewhere in this Code.
5.
Place and time in w/c it must be made
6.
Imputation of expenses occasioned by it
7.
Special parts w/c may modify the same and the effects they
MUTUO DISENSO
generally produce
It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the
BURDEN OF PROVING PAYMENT
parties can cause its extinguishment. GENERAL RULE: DEATH It devolve supon the debtor who pleads payment or offers such defense to General Rule: Death of either the creditor or the debtor does not extinguish
the claim of the creditor rather than on the latter to prove non-payment
the obligation; obligations, actively and passively, are transmissible to the heirs, except when the law, the stipulations of the parties or nature of the
RECEIPT OF PAYMENT
obligation prevents such transmission
Deemed to be the best evidence of payment (not exclusive)
WANT OF INTEREST OF THE CREDITOR DISPUTABLE PRESUMPTION:
Does not extinguish the obligation Money paid by one to another was due to the latter
INSOLVENCY REQUISITES OF PAYMENT
Does not extinguish an obligation unless it has been judicially declared and a discharge has been given to him.
1.
Capacity of the person paying
2.
Capacity of the person receiving the payment
3.
CLASSIFICATION OF MODES OF EXTINGUISHMENT
Delivery of the full amount or the full performance of the prestation
1.
VOLUNTARY
4.
Propriety of time, place and the manner of payment
a)
5.
Acceptance of the payment by the creditor
b)
c)
PERFORMANCE: i.
Payment
ii.
Consignation
KINDS OF PAYMENT
SUBSTITUTION i.
Dacion en pago (conveyance for payment)
ii.
Novation
1.
NORMAL
By release agreement i.
2.
Agreement subsequent to the constitution
ABNORMAL
of the obligation:
ii.
Mutual waiver
Unilateral waivr
Remission
Agreement
simultaneous
Resolutory condition
Extinctive period
1233. A debt shall not be understood to have been paid unless the thing or to
the
service in which the obligation consists has been completely delivered or rendered, as the case may be. DEBT
INVOLUNTARY a)
By reason of subject: i.
Confusion
ii.
Death of the contracting parties in personal obligations
b)
May refer to an obligation to deliver money, to deliver a thing other than money, to do an act or not to do an act.
WHEN DEBT IS CONSIDERED PAID
By reason of the object: i.
Loss of the thing due or impossibility of
1.
IDENTITY
performance c)
When he is forced by means of judicial proceeding, either to comply w/ the prestation or to pay indemnity
constitution of the obligation:
2.
When the debtor voluntarily performs the prestation stipulated
By failure to exercise i.
delivered or performed
Extinctive prescription
Section 1. PAYMENT OR PERFORMANCE 1232. Payment means not only the delivery of money but also the
Means that the very thing or service due must be
Means that the prestation must be fulfilled completely
Partial or irregular performance will not produce the extinguishment of an obligation as a general rule
GENERAL RULE:
performance, in any other manner, of an obligation. CONCEPT OF PAYMENT
1
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN There is no payment if there is no complete delivery or
Whoever pays for another may demand from the debtor what
performance of the service
he has paid, except that if he paid w/o the knowledge or against the will of
EXCEPTIONS:
to the debtor.
the debtor, he can recover only insofar as the payment has been beneficial
REASON: Articles 1234 and 1235
rd
Because whenever a 3 person pays there is a modification of the prestation that is due
1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been strict and complete fulfillment, fulfillment, less damages suffered by the oblige. PERSONS FROM WHOM THE CREDITOR MUST ACCEPT PAYMENT:
First exception to the rule in article 1233 REASON: because in substantial performance, the oblige is
1.
Debtor
benefited
2.
Any person who has an interest in the obligation (ex. Guarantor)
The last condition affords a just compensation for the relative
3.
A3
breach committed by the obligor (Relative Breach)
rd
person who ha sno interest in the obligation when there is
stipulation that he can make payment EFFECT OF PAYMENT BY A 3
REQUISITES FOR THE APPLICATION OF THE ARTICLE:
1.
RD
PERSON
IF MADE W/O THE KNOWLEDGE OR AGaINST THE WILL OF DEBTOR
1.
There must be substantial performance
2.
The obligor must be in good faith
The recovery is only up to the extent or amount of the debt at the time of the payment.
SUBSTANTIAL PERFORMANCE
2.
There must have been an attempt in good faith to
rd
3 person is not subrogated to the rights of the creditor If made with the knowledge of the debtor and consent Payer shall have the rights to reimbursement and
perform w/o any willful or intentional departure
subrogation
therefrom.
Deviation from the obligation must be slight
Omission or defect must be technical and unimportant
Must not pervade the whole or be so material that the
RIGHT OF A 3
RD
PERSON
object w/c the parties intended to accomplish in a
particular manner is not attained
May recover from the debtor the sum so paid out, at least to the extent in w/c the payment may have been beneficial to the
1235. When the obligee accepts the performance, knowing its
debtor
incompleteness and irregularity, and w/o expressing any protest or rd
objection, the obligation is deemed fully complied with.
3 PERSON; AMOUNT OF RECOVERY
To constitute a waiver, there must be an intentional relinquishment of a
General Rule:
known right. rd
The 3 person may recover the full amount he had paid
Founded on the principle of estoppel Exception:
ACCEPT The law limits the recovery to the amount by which the debtor has been
Means to take as satisfactory or sufficient, or agree to an
benefited, if the debtor has no knowledge of, or has expressed his opposition
incomplete or irregular performance.
to such payment
Mere receipt of partial payment is not equivalent to the required acceptance of performance as would extinguish the whole
1237. Whoever pays on behalf of the debtor w/o the knowledge or against
obligation; to imply that the creditor accepts partial payment as
the will of the latter, cannot compel the creditor to subrogate him his
complete performance, acceptance must be made under
rights, such as those arising from a mortgage, guaranty and penalty.
circumstances that indicate his intention to consider the performance complete and to renounce claim arising from defect ACCEPTANCE
The law considers that then creditor waives his rights; the whole
SUBROGATION
Can be availed if the payment is with the consent of the debtor
Takes place by virtue of the payment of the credit
Payor actually steps into the shoes of the creditor and becomes entitled not only to recover what he has paid, but also o exercise
obligation is extinguished
all the rights w/c the creditor could have exercised. REQUISITES FOR THE APPLICATION OF THE ARTICLE:
Change in the active subject and not a real extinguishment of obligation.
1.
The oblige knows that the performance is incomplete or irregular
2.
He accepts the performance w/o protest or objection
ESTOPPEL OF CREDITOR
SUBROGATION VS. REIMBURSEMENT SUBROGATION Person who pays for the creditor is
REIMBURSEMENT 3r person entitled by reason of
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN
1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, insofar as the payment has been beneficial to him. NB: rd
Payment made to a 3 person shall also be valid insofar as it has
If the 3rd persons pays the obligation w/ the KNOWLEDGE and
redounded to the benefit of the creditor. Such benefit to the creditor need
CONSENT of the debtor
not be proved in the following cases:
If the debtor knows that the 3
person is making the payment but rd
he did not object or did not repudiate the same act at anytime
1.
If after the payment, the 3 person acquires the creditor’s right;
w/ knowledge but does not say anything
2.
If the creditor ratifies the payment to the 3 person;
3.
If by the creditor’s conduct, the debtor has been led to believe
rd
Payor is entitled for the full reimbursement.
rd
rd
that the 3 person had authority to receive the payment.
If payment was made w/o the knowledge or w/o the consent of the debtor
General Rule:
w/ knowledge but w/o consent
Reimbursement shall only up to the extent by w/c the debtor was benefited (BENEFICIAL REIMBURSEMENT)
PAYMENT TO A PERSON INCAPACITATED TO ADMINISTER HIS PROPERTY IS NOT VALID.
rd
1238. Payment made by a 3 person who does not intend to be reimbursed by the debtor is deemed to be a donation , w/c requires the debtor’s
Exception:
consent. But the payment is in any case valid as to the creditor who has accepted it.
There is a valid payment if the creditor accepts even the debtor did not give his consent to the donation
Such person has kept the thing paid or delivered
2.
Such person was benefited by the payment
When the creditor is incapacitated to receive payment, this must be made to his legal representative if there is one
1239. In obligation to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, w/o prejudice to the provisions of article 1427 under the Title on “Natural Obligations.”
If there be none, then the debtor may relieve himself of the responsibility by delivering the thing to the court in consignation, by virtue of article 1256. If payment is made to the creditor who is incapacitated, it shall be valid only insofar as it accrued to his benefit.
FREE DISPOSAL OF THE THING DUE
Means that the thing to be delivered must not be subject to any claim or lien or encumbrance of a 3
rd
peson CAPACITY TO ALIENATE
Means that the person is not incapacitated to enter into contracts and to make disposition of the thing due.
GENERAL RULE:
In the absence of this benefit, the debtor maybe made to pay again the by the incapacitated himself when he attains capacity, or his legal representatives during his incapacity. Par.2 GENERAL RULE: Payment to a 3
rd
person shall be valid insofar as it has redounded to the
benefit of the creditor— creditor —must be proved EXCEPT:
In obligations to give, payment by one who does not have the free disposition of the thing due or capacity to alienate it is not valid. (thing paid can be recovered) 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to received it TO WHOM PAYMENT SHALL BE MADE 1.
1.
To the person in whose favor the obligation is constituted (CREDITOR)
2.
His successor in interest
3.
Any person authorized to receive it
Person authorized by the creditor or a person
1.
Subrogation of the payer in creditor’s right
2.
Ratification by the creditor
3.
Estoppels on the part of the creditor
In addition to those enumerated, payment to a 3
rd
person releases the
debtor: 1.
When, w/o notice of assignment of the credit, he pays to the original creditor
2.
When in good faith he pays to one in possession of the credit
Creditor cannot demand payment anew, if the mistake of the debtor was due to the fault of the creditor. FORMS OF BENEFIT: must be proved
authorized by law to receive the payment
Article 1242. Payment in good faith to any person in
a)
Financial
possession of the credit is valid although such person
b)
Moral
may not be authorized to receive the payment.
c)
Intellectual advantages
When payment is made to the wrong party, the obligation is not
1242. Payment made in good faith to any person in possession of the credit
extinguished as to the creditor who is w/o fault or negligence even if the
shall release the debtor.
debtor acted in outmost good faith POSSESSION OF CREDIT AUTHORITY
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN The person in possession of the credit is neither the
creditor nor one authorized by him to received
the value of the thing delivered or totally if such is the intention of
payment but appears to be the creditor
Mere holding of a document will not be sufficient
Payment to the possessor of the document or title
Presupposes an existing debt w/c is extinguished to the extent of the parties.
The law of sale governs because it may be considered a specie of sale in w/c the amount of money debt becomes the price of the
does not nec essarily extinguish the credit
thing alienated.
REQUISITES OF THE ARTICLE:
Requires the delivery and transmission of ownership of a thing to the creditor who accepts it as equivalent of payment of an outstanding debt.
1.
Possession of the credit be legal
2.
Payment be in good faith
1243. Payment made to the creditor by the debtor after the latter has been
REQUISITES OF DATION IN PAYMENT 1.
judicially ordered to retain the debt shall not be valid.
There must be performance of the prestation lieu of payment (animo solvendi) w/c may consist in the delivery of a corporeal thing or a real right or a credit against a 3
Can only be invoked by the creditor who secures the order of
2.
retention. EFFECT OF GARNISHMENT
garnishment, to the extent of the amount of the judgment in
There must be some difference b/w the prestation due and that There must be an agreement b/w the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due
Void as to the party who obtained the attachment or creditor’s favor.
person
w/c is given in substitution (aliud pro alio) 3.
rd
CONCEPT OF DATION IN PAYMENT
Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent
GARNISHMENT
The proceeding for the purpose of subjecting a debtor’s credit to the payment of his debt to another
of the performance of the obligation
right, such as a usufruct or of a credit against a third person
warranty against eviction and hidden defects of the thing, are therefore applicable, the debtor being considered as the the
creditor. It is in the nature of involuntary novation by the substitution of one creditor for another.
vendor (WARRANTIES OF DEBTOR)
valuable than that w/c is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee’s will.
If the creditor is evicted from the thing given in dation in payment, the original obligation is not revived; but he is entitled o recovery as buyer for breach of warranty (1555)
1244. The creditor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more
It is an onerous contract of alienation because the object is given in exchange of the credit. The provisons on sales regarding
Takes place when the debtor of the debtor is ordered not to pay the latter so that preference would be given to the latter’s
Property given may consist not only of a thing but also of a real
DATION IN PAYMENT VALID 1.
If the creditor consents
2.
If it will not prejudice the other creditors
3.
If debtor is not judicially declared insolvent
st
1 paragraph
Refers to real obligation to deliver a specific thing
Where debt is in money, the law on sales shall govern DATION ON PAYMENT; EFFECT ON OBLIGATION
nd
2 paragraph
It extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be
Refers to personal obligations
proved, unless the parties by agreement consider the thing as equivalent to the obligation, in w/c case the obligation is totally
EXCEPTIONS:
extinguished. a)
In case of facultative obligation
b)
In case there is another agreement resulting in:
No dation in payment where there is no obligation to be extinguished
-dation in payment(1245) -novation (1291) a)
SALE VS. DATION IN PAYMENT( no absolute confusion in between)
In case of waiver by the creditor/ when he consents
purpose of releasing himself from the obligation and not as a
1245. Dation in payment, whereby property is alienated to the creditor in
vendor
satisfaction of a debt in money, shall be governed by the law of sales.
SPECIAL FORMS OF PAYMENT
In the latter, the obligor who delivers the thing does so for the
EFFECTS: If the debtor later proves that he paid by mistake, he can recover not the price by which the thing was apparently conveyed nut the thing itself because the person who received it is solely a
1.
Dation in payment
2.
Application of payments
3.
Payment by cession
4.
Tender of payment and consignation
creditor. SALE No pre-existing credit Obligations are created Cause/consideration is the price paid
DATION IN PAYMEMT There is pre-existing credit Obligations are extinguished
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN
Parties deliver and receive the thing as seller and buyer
Parties deliver and receive the thing as debtor and creditor
expenses incurred in the action 1248.
DATION IN PAYMENT VS. ASSIGNMENT IN ARTICLE 1255
The statutory amounts allowed to a party to an action for his
Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in w/c the obligation consists. Neither may the debtor be required to make partial
Bothe are substitute forms of performance of an obligation
DATION IN PAYMENT Does not involve plurality of creditors, nor the whole of the property of the debtor Does not suppose a situation of financial difficulties Merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same voluntarily.
ASSIGNMENT Involves plurality of creditors, and the whole of the property of the debtor
payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former w/o waiting for the liquidation of the latter.
incur in delay (mora accipiendi) except when there is abuse of right or if good faith requires acceptance
subjects or where the various parties are bound under different Joint obligation-one debtor may pay only his share of the obligation and the debtor cannot refuse the partial payment
PLEDGE
the intention of the parties. In case of doubt, the presumption is in favor of pledge, w/c involves a lesser transmission of rights. 1246. When the obligation consists in the delivery of an indeterminate or
Solidary obligation-any debtor may offer to pay only the portion of the obligation not suspended by the terms or conditions.
The transaction is pledge and not dation in payment in case where personal property is delivered to the creditor unless this is clearly
The article does not apply to obligations where there are several terms and conditions
The creditor who refuses to accept partial prestations does not
GENERAL RULE: Payment shall be complete Exceptions:
generic thing, whose quality and circumstances have not been stated, the
1.
When there is express stipulation to that effect
creditor cannot demand a thing of superior quality. Neither can the debtor
2.
When the debt is in part liquidated and in part unliquidated
deliver a thing of inferior quality. The purpose of the obligation and other
3.
circumstances shall be taken into consideration.
Principle of equity; it supplies justice in cases where there is lack of precise declaration in the obligation of the quality or kind of the thing to be delivered.
Maybe waived by the creditor by accepting a thing of inferior quality and by the debtor by delivering a thing of superior quality.
RULE OF THE MEDIUM QUALITY General rule:
4. 5. 6. 7. 1249.
If there is disagreement b/w the debtor and the creditor as to the quality of the thing delivered, the court should decide whether it complies with the obligation, taking into consideration the
currency w/c is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of
In the meantime, the action delivered from the original obligation shall be held in abeyance.
Deals w/ a mode of extinction of debts
Applicable not only to those instruments executed by 3
When the kind and quality cannot be determined w/o a need of a new agreement, the contract is void.
judicial costs, the rules of court shall govern. Does not apply to expenses incurred by the creditor in going to the debtor’s domicile to collect.
persons
the creditor. CURRENCY STIPULATED
Refers to money different from that w/c is the legal tender or legally current in the Philippines
1247. Unless it is otherwise stipulated, the extra judicial expenses required by the payment shall be for the account of the debtor. With regard to
rd
but also to a note executed by the debtor himself and delivered to
Creditor and debtor may waive the benefit of this article unless the price to be paid is dependent upon quality
REASON:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
purpose and other circumstances circumstances of the obligation.
When there is abuse of right or if good faith requires acceptance.
the creditor they have been impaired.
consideration to determine the quality or kind of thing to be delivered.
When the parties know that the obligation is to be performed in parts
The purpose of the obligation and other circumstances shall be taken into
When a solidary debtor pays only the part demandable
payment only when they have been cashed, or when through the fault of
If Generic:
When a joint debtor pays his share or the creditor demands the same
If the obligation consists in the delivery of a specific thing, the very thing due must be delivered
When different prestations are subject to different conditions or terms
RA 529 RA 8183
Repealed RA 529.
There is no longer any legal impediment to having obligations or transactions paid in a foreign currency as long as the parties agree
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN Currency w/c a debtor can legally compel a creditor to accept in
DECREASE OF VALUE OF THE CURENCY
payment of a debt in money when tendered by the debtor in the DEVALUATION
right amount. (Black’s Dictionary)
Means such currency w/c in a given jurisdiction can be used for
the payment of debts, public and private, and in w/c cannot be
officially fixed level imposed by monetary authorities
refused by the creditor.
DEPRECIATION
LEGAL TENDER IN THE PHILIPPINES:
Involves an official reduction in the value of one currency from an
All coins and notes issued by the BAngko Sentral ng Pilipinas
Refers to the downward change in the value of one currency in
constitute legal tender for all debts, both public or private.
terms of the currencies of other nations w/c occurs as a result of
Unless otherwise fixed by its monetary board, coins are legal
market forces in the foreign exchange market.
tender for amounts not exceeding P50.00 for denominations of P.25 and above, and in amounts not exceeding
P20.00, for
1251.
denominations of P.10 or less.
All coins and bills above P1.00 are valid legal tenders for any amount.
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.
PAYMENT BY MEANS OF INSTRUMENTS OF CREDITS
In any other case the place of payment shall be the domicile of the debtor.
CHECK
If the debtor changes his domicile in bad faith or after he has
Not a legal tender EXCEPT IF THE CREDITOR CHOOSES TO ACCEPT. In the mean =time, demandability is suspended until the payment
incurred in delay, the additional expenses shall be borne by him.
is in cashed.
Creditor may refuse to accept unless expressly stipulated
Payment by means of mercantile document does not extinguish the obligation except: 1.
They have been cashed
2.
They have been impaired through the fault of the creditor.
These provisions are w/o prejudice to venue under the Rules of court. PLACE WHERE OBLIGATION SHALL BE PAID
1250. In case an extraordinary inflation or deflation of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.
Applies only when a contract or agreement is involved
Does no t apply where the obligation arises from law, independent of contracts like the taking of the private property by
That w/c is unusual or beyond the common fluctuations in the value of the currency, w/c the parties could not have reasonably forseen or w/c was manifestly beyond their contemplation at the time when the obligation was constituted.
In the place designated
2.
No stipulation and the thing to be delivered is specific
At the place where the thing was, at the perfection of the contract
3.
No stipulation and the thing to be delivered is generic
Domicile of the debtor
Creditor bears the expenses in going to the debtor’s place to
stipulated currency takes place.
If there is a stipulation
DOMICILE
Applies to cases where extraordinary deflation or inflation f the
EXTRAORDINARY INFALTION OR DEFLATION
1.
accept payment
the government in the exercise of its power of eminent domain.
Sharp sudden increase of money or credit or both w/o a corresponding increase in business transactions.
Causes a drop in the value of money, resultin in rise of the general price level
There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in the
1252.
Reduction in volume and circulation of the available money or credit, resulting in a decline of the general price level; it is the opposite of inflation.
REQUISITES FOR THE APPLICATION OF THE ARTICLE
He who has various debts of the same kind in favor of one of the
same creditor, may declare at the time of making the payment, to w/c of them the same must be applied. Unles the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application application shall not be made as to debts w/c are not yet due. If the debtor accepts from the creditor a receipt in w/c an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. APPLICATION OF PAYMENTS
The designation of the debt to w/c should be applied the payment made by a debtor who has various debts of the same kind in favor
substantial and continuing rise in the general price level. DEFLATION
Place of a person’s habitual residence
SUBSECTION 1. APPLICATION OF PAYMENTS
INFLATION
Payment shall be made in the place designated in the obligation
of one and the same creditor. REQUISITES; 1.
There must be one debtor and one creditor
2.
There must be 2 or more debts
3.
Debts must be of the same kind
4.
Debts to w/c payment made by the debtor has been applied must be due
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN Exceptions:
1.
An interest bearing debt is more onerous
2.
A debt as a sole debtor is more onerous than as a solidary debtor
1.
There is a stipulation that the debtor may so apply
3.
All things being equal, older debts are more onerous
2.
It is made by the debtor or creditor, as the case may be, for whose
4.
Debts secured by a mortgage or by pledge are more onerous than
benefit the period has been constituted.
unsecured debts 5.
RULES ON APPLICATION OF PAYMENTS 1.
Debtor has the 1
st
2.
property the provisional sale of which was cancelled by the seller for non-payment of the installments 6.
Right to make application once exercised is irrevocable unless the creditor consents to the change.
3.
him were held more onerous than the balance of the price of the
choice; must indicate at the time of the
payment and not afterwards w/c particular debt is being paid
right to make the designation by specifying in the receipt w/c debt
7.
An obligation w/ a penalty clause is more burdensome than one w/o penalty clause.
8.
If the debts are subject to different burdens that it cannot be definitely determined w/c debt is most onerous to the debtor, the
is being paid. 4.
Of two interest-bearing debts, the one w/ a higher rate is more onerous
Right to apply payment is not mandatory but merely directory; if the debtor does not apply payment, creditor has the subsidiary
Unpaid rentals due from the purchaser of property occupied by
payment should be applied to all of them proportionately.
If both have not made the application, debt, w/c is most onerous to the debtor among those due, shall be deemed to have been
SUBSECTION 2. - Payment by Cession
satisfied. 5. 6.
If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.
Art. 1255. The debtor may cede or assign his property to his creditors in
If neither party has exercised its option and there is disagreement
payment of his debts. This cession, unless there is stipulation to the
as to debts to w/c payment must be applied, the court will apply
contrary, shall only release the debtor from responsibility for the net
the payment according to justice and equity of the case taking all
proceeds of the thing assigned. The agreements which, on the effect of the
te circumstances in consideration.
cession, are made between the debtor and his creditors shall be governed by special laws. (1175a)
1252-1254
Apply to a person owing several debts of the same kind to a single
consent of all the creditors as distinguished from legal or judicial
creditor. Art. 1253. If the debt produces interest, payment of the principal shall not
Refers to voluntary or contractual assignment w/c requires the assignment w/c is governed by the Insolvency Law.
It merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same
be deemed to have been made until the interests have been covered.
voluntarily.
(1173) PAYMENT BY CESSION INTEREST EARNED PAID AHEAD OF PRINCIPAL
Rule is mandatory
Debtor cannot choose to credit his principal before the interest is
debtor for the benefit of his creditors in order that the latter may sell the same and apply the proceeds thereof to the satisfaction of
paid
their credits.
If the rule is subject to any agreement b/w the parties or to waiver by the creditor, it merely directory
INTEREST TO BE PAID a)
Interest by way of compensation
b)
Interest by way of damages by wy of default
It is the assignment or abandonment of all the properties of the
REQUISITES OF PAYMENT BY CESSION 1.
There must be 2 or more creditors
2.
The debtor must be partially insolvent
3.
The assignment must involve all the properties of the debtor
4.
The cession must be accepted by the creditors
EFFECT OF PAYMENT BY CESSION Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)
The assignment does not make the creditors the owners of the property of the debtor and the debtor is released from his obligation only up to the net proceeds of the sale of the property assigned. The debtor is still liable if there is balance
EXCEPTION:
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN
Only the specific creditor’s consent is needed Extinguish the obligation and releases the debtor
All creditors consent Extinguishes only the credits to the extent of the amount realized from the properties assigned, unless otherwise provided
3.
Must be actually made
PROOF OF TENDER OF PAYMENT
Must be proved by the debtor in proper case
When tender is not required, only prior notice to interested persons of the consignation need be proved.
Both are substitute forms of payment or performance and governed by the law on sales. SUBSECTION 3. - Tender of Payment and Consignation
Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt;
WHEN TENDER OF PAYMENT NOT REQUIRED 1.
creditor does not accept payment w/o legal justification
2.
if it is useless to offer or tender payment
Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177) PRIOR NOTICE TO PERSONS INTERESTED REQUIRED
consignation shall be charged against him and that in case of loss of the thing consigned, he shall bear the risk thereof CONSIGNATION MUST COMPLY WITH PROVISIONS ON PAYMENT
TENDER OF PAYMENT
possession the thing or money to be delivered at the time of the offer. An act preparatory to consignation, w/c is the principal, and from w/c are derived the immediate consequences w/c the debtor desires or seeks to obtain. CONSIGNATION
1.
It is the act of depositing the thing or amount due w/ 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 w/c is by its very nature extrajudicial.
A facultative remedy w/c the debto may or may not avail of
Produces the effect of payment and extinguishes an obligation; to avoid the performance of an obligation more onerous o the debtor by reason of causes not imputable to him.
REQUISITES OF VALID CONSIGNATION 1.
Existence of a valid debt w/c is due
2.
Tender of payment by the debtor and refusal w/o justifiable
one of the rules is that payment should be made in legal tender
It 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
PURPOSE: to give the creditor a chance to reflect on his previous refusal to accept payment considering that the expenses of
(4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. (1176a)
in the absence of such, the consignation, as payment, shall be void.
In case of refusl of tender of payment of a judgment, the court may direct the money to be paid into court, and after this payment is done, order satisfaction of judgment to be entered. Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. (1178) CONSIGNATION MUST BE MADE W/ PROPER JUDICIAL AUTHORITY AND NOT ELSEWHERE. CONSIGNATION AHS RETROACTIVE EFFECT
the payment is deemed to have been made at the time of the deposit of the thing in court or when it was placed at the disposal of the judicial authority.
RATIONALE: to avoid making the performance of an obligation more onerous o the debtor by reason of causes not imputable to him
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN REASON:
SECTION 2. - Loss of the Thing Due
The consignation is made necessary because of the fault or unjust refusal of the creditor
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the
Except:
fault of the debtor, and before he has incurred in delay.
If the consignation is not properly made; debtor shall be the one liable
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be
CONSIGNATION DEEMED PRPERLY MADE
responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a)
2.
When the creditor accepts the thing or sum deposited, w/o objection, as payment of the obligation
3.
4.
WHEN A THING CONSIDERED LOST
When the creditor questions the validity of the consignation, and the court, after hearing, declares that it has been
1.
When it perishes
properly made
2.
Goes out of commerce
When the creditor neither accepts nor questions the validity
3.
of the consignation, and the court after hearing, orders the
Disappears in such a way that its existence is unknown or it cannot be recovered
cancellation of the obligation LOSS OF A DETERMINATE THING The creditor may accept the consignation w/ reservation or qualification; therefore, he is not barred from raising the claims he reserved against the
debtor.
Is the equivalent of impossibility of performance in obligations to do referred to in 1266
Art. 1260. Once the consignation has been duly made, the debtor may ask
LOSS OF THE THING DUE
the judge to order the cancellation of the obligation.
Extends to both obligations to give and obligations to do.
Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may
WHEN LOSS OF THING WILL EXTINGUISH AN OBLIGATION TO GIVE;
withdraw the thing or the sum deposited, allowing the obligation to remain
REQUISITES
in force. (1180) 1.
The obligation is to deliver a specific or determinate thing
The observance of all the requisites of consignation operates as a valid
2.
The loss of the thing occurs w/o the fault of the debtor
payment; hence, the debtor can move for the cancellation of the obligation
3.
The debtor is not guilty of delay
by the court WHEN LOSS OF THE THING WILL NOT EXTINGUISH LIABILITY The debtor may w/draw: 1.
When the law so provides When the stipulation so provides
1.
Before the creditor has accepted the consignation
2.
2.
Before a judicial declaration that the consignation has been
3.
When the nature of the obligation requires the assumption of risk
properly made, as he is still the owner of the same.
4.
When the obligation to deliver a specific thing arises from a crime
Obligation shall continue to remain in force. All expenses are paid by the
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction
debtor.
of anything of the same kind does not extinguish the obligation. (n)
The depositor, however, cannot recover the thing or sum w/o express order
EFFECT OF LOSS OF A GENERIC THING
of restitution.
Where all the requisites for a valid consignation have been complied w/, the
The debtor can still be compelled to deliver a thing of the same kind. The creditor, however, cannot demand a thing of superior
loss of the thing or amount consigned occurring w/o the fault of the debtor
quality and neither can the debtor deliver a thing of inferior
before the acceptane of the consignation by the creditor or its approval by
quality
the court is for the account of the creditor Art. 1264. The courts shall determine whether, under the circumstances, Art. 1261. If, the consignation having been made, the creditor should
the partial loss of the object of the obligation is so important as to
authorize the debtor to withdraw the same, he shall lose every preference
extinguish the obligation. (n)
which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a)
EFFECT OF PARTIAL LOSS OF SPECIFIC THING
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN PRESUMPTION OF FAULT IN CASE OF LOSS OF THING IN POSSESSION OF
Authorizes a total or partial release from an obligation, not a modification or revision of the terms and conditions of the
THE DEBTOR
contract b/w the parties REASON:
The court shall either release or not release a party from a contract, but it cannot modify the terms thereof and orede the
Because the debtor who has the custody and care of the thing can
paries to comply w/ the contract as modified by it.
easily explain the circumstances of the loss. The creditor has no duty to show that the debtor was at fault. It is the debtor who must prove that he was not
Art. 1268. When the debt of a thing certain and determinate proceeds from
at fault.
a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having The obligor who is not at fault is still liable in case he is guilty of
delay or has promised to deliver the same thing to 2 or more persons who do
been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185)
not have the same interest. EFFECT OF FORTUITOUS EVENT WHERE OBLIGATION PROCEEDS FROM A EXCEPTIONS:
CRIMINAL OFFENSE
In case of natural calamitie Art. 1266. The debtor in obligations to do shall also be released when the
Does not exempt the debtor from liability
The obligation subsists except when the creditor refused to accept the thing, w/o justification, after it had been offered to
prestation becomes legally or physically impossible without the fault of the obligor. (1184a)
him (mora accipiendi)
due diligence. He is liable for damages if the loss is due to his
Exception to the obligatory force of contract. It refers to a case
fault.
when, w/o the obligor’s fault, an obligation to do becomes legally or physically impossible.
Art. 1269. The obligation having been extinguished by the loss of the thing,
EFFECT OF IMPOSSIBILITY OF PERFORMANCE
The supervening impossibility of performance will result in the extinction of the debtor’s obligation after restitution of what he may have received, if any, in advance from the other contracting party. The debtor incurs no liability for his inability to perform.
KINDS OF IMPOSSIBILITY 1.
Physical impossibility
2.
Legal impossibility
the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186) RIGHT OF CREDITOR TO PROCEED AGAINST 3
RD
PERSONS
Creditor is given the right to proceed against the 3
rd
person
responsible for the loss
There is no need for the assignment by the debtor
The rights of action of the debtor are transferred to the creditor from the moment the obligation is extinguished, by operation of law to protect the interest of the latter by reason of the loss.
NATURAL IMPOSSIBILITY AND IMPOSSIBILITY IN FACT DISTINGUISHED NATURAL IMPOSSIBILITY Must consist in the nature of the thing to be done and not in the inability of the party to do so; it must appear that the thing to be done cannot by any means be accomplished Goes to the consideration and renders the contract void
Consignation is not necessary; debtor however , must still exercise
IMPOSSIBILIT Y IN FACT In the absence of inherent impossibility in the nature of the thing stipulated to be performed, w/c is only improbable or out of the power of the obligor.
SECTION 3. - Condonation or Remission of the Debt
Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly. One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187)
It does not
Art. 1267. When the service has become so difficult as to be manifestly
CONDONATION OR REMISSION
the debtor resulting in the extinguishment of the latter’s
beyond the contemplation of the parties, the obligor may also be released
obligation in its entirety or in that part of the same to w/c the
therefrom, in whole or in part. (n) GENERAL RULE: Impossibility of performance releases the obligor.
Is the gratuitous renunciation by the creditor of his right against
renunciation refers
A form of donation
Bilateral act; requires the acceptance by the debtor.
REASON: if the creditor is authorized to impose upon the debtor favors, the remission may be converted into an act of humiliation
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN d) Compromise, if what is renounced is a
doubtful or litigious right in exchange of
*Debtor or his heirs may prove that the delivery of the document was really made in virtue of payment of the debt and not of remission
other concessions obtained by the creditor. 2.
It must be accepted by the obligor
Art. 1272. Whenever the private document in which the debt appears is
3.
The parties must have capacity
found in the possession of the debtor, it shall be presumed that the
4.
It must not be inofficious
creditor delivered it voluntarily, unless the contrary is proved. (1189)
5.
If made expressly, it must comply w/ the forms of donation PRESUMPTION IN CASE DOCUMENT FOUND IN POSSESSION OF DEBTOR
It is also clear that remission, properly speaking, presupposes that the obligation is and continues to be, demandable at the time of the
That it was voluntarily delivered by the creditor
remission
It gives rise to the presumption of remission
Give rise to the presumption of payment and only when it is known that indeed there is no payment should there be
KINDS OF REMISSION
presumption of remission 1.
2.
3.
As to its extent; a)
Complete-covers the entire obligation
b)
Partial-it does not cover the entire obligation
As to its forms: a)
Express-made either verbally or in writing
b)
Implied-can only be inferred from conduct
As to its date of effectivity: a)
Inter vivos-when it will atke effect during the lifetime of the donor
b)
Mortis causa-when it will become effective upon the death of the donor. It must comply w/ the formalities of a will
EFFECT OF INOFFICIOUS REMISSION
Testamentary dispositions w/c impair the legitime shal be reduced on petition of the heirs insofar as they are inofficios or excessive.
LEGITIME
Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190) EFFECT
OF
RENUNCIATION
OF
PRINCIPAL
DEBT
ON
ACCESSORY
OBLIGATION
Follows the rule that the accessory folloes the principal
Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a) General rule: Thing pledged be placed I the possession of the creditor, or of a 3
rd
person by
common agreement. PRESUMPTION IN CASE THING PLEDGED FOUND IN POSSESSION OF DEBTOR
that part of the testator’s property w/c he cannot dispose of because the law has reserved it for compulsory heirs
Debtor shall continue to be indebted but he does not have to return the thing pledged.
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the
Only the accessory obligation of pledge is presumed remitted, not the obligation itself.
Presumption
yields
to
contrary
evidence
action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the
SECTION 4. - Confusion or Merger of Rights
debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (1188) PRESUMPTION OF IMPLIED REMISSION
In order that the presumption may be applicable, it is necessary that the delivery of the private document be a voluntary act of the creditor.
creditor and debtor are merged in the same person. (1192a) CONFUSION/MERGER
In case he voluntarily delivers it to the debtor, the only logical inference is that he is renouncing his right
The meeting in one person of the qualities of creditor and debtor w/ respect to the same obligation
If the debt is not yet paid, the creditor would need the document to enforce payment.
Art. 1275. The obligation is extinguished from the time the characters of
REASON/BASIS 4.
The law treats confusion or merger as a mode of extinguishing
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN Art. 1276. Merger which takes place in the person of the principal debtor or
creditor benefits the guarantors. Confusion which takes place in the person
There is only one person who is a creditor and debtor himself
of any of the latter does not extinguish the obligation. (1193) EFFECT OF MERGER IN THE PERSON OF PRINCIPAL DEBTOR OR CREDITOR. CREDITOR.
Extinguishes the obligation
EFFECT OF MERGER IN THE PERSON OF GUARANTOR
There is one obligation There is impossibility of payment
COMPENSATION AND PAYMENT DISTIGUISHED
While it extinguishes the guaranty, it leaves the principal obligation in force.
Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two
COMPENSATION Takes effect by operation o law It is not required that the parties have the capacityto give or to receive, as the case maybe
characters concur. (1194) The law permits partial extinguishment of the obligation
CONFUSION IN A JOINT OBLIGATION
COMPENSATION AND COU NTERCLIM DISTINGUISHED
CONFUSION IN A SOLIDARY OBLIGATION Merger in the person of one of the solidary debtors shall extinguish the entire obligatiuon because it is also a merger in the other solidary debtors.
PAYMENT Takes effect by act of the parties Parties must have the free disposal of the thing due and capacity to alienate it and to receive payment, as the case maybe. It is necessary that it be complete and indivisible
The confusion will extinguish only the share corresponding to the creditor or debtor in whom the 2 characters concur.
There are 2 persons involved, each of whom is a debtor and a creditor of the other There are 2 obligations There is indirect payment There may be compensation in joint and solidary obligations
There is only one obligation and every debtor is individually responsible
for
the
payment
of
the
whole
obligation.
SECTION 5. - Compensation Compensation
COMPENSATION Takes place by mere operation of law and extinguishes reciprocally the 2 debts as soon as they exist simultaneously, to the amount of their respective sums Requires that both debts consist in money or if the things due are consumable, the be of the same kind and quality Requires that the 2 debts must e liquidated
CONTERCLAIM Must be pleade to be effectual
Such requirement is not provided
There is no such requirement
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) COMPENSATION
KINDS OF COMPENSATION 1.
By its effect or extent: a)
The extinguishment to the concurrent amount of the debts of two b)
persons who, in their own right, are reciprocally principal debtors
be partial only as regards the larger debt.
Involves the simultaneous balancing of 2 obligations in order to totally extinguish them if they are of the same amount or to the extent in w/c the amount of one is covered by that of the other, if of different amounts.
Partial-2 obligations are of different amounts and a balance remains; extinctive effect of compensation will
and creditors of each other.
Total-both obligations are of the same amount and are entirely extinguished
2.
By its cause or origin: a)
Legal-by operation of law when all requisites are present even w/o knowledge of the parties
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN 2. Both debts consist in a sum of money or of consumable things of
the same kind and quality 3.
That the 2 debts are due or demandable
4.
The two debts are liquidated
5.
No retention or controversy has been commenced by a 3
Valid until they are judicially rescinded or avoided. Prior to rescission or annulment, debts may be compensated against each other.
rd
person.
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee
Absent any showing that all these requisites are present, compensation
the compensation which would pertain to him against the assignor, unless
may not take place
the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe
If the creditor communicated the cession to him but the debtor did not
the principal debtor. (1197)
consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones.
COMPENSATION BENEFITS GUARANTOR If the assignment is made without the knowledge of the debtor, he may set
The article is an exception to the general rule that only the
up the compensation of all credits prior to the same and also later ones
principal debtor can set up against his creditor what the latter
until he had knowledge of the assignment. (1198a)
owes him
Although the guarantor is only subsidiary, not principally bound,
WHERE COMPENSATION HAS TAKEN PLACE BEFORE ASSIGNMENT
he is given the right to set up compensation
REASON:
Debts are extinguished to the concurrent amount If subsequently, the extinguished debt is assigned by the creditor rd
to a 3 person, the debtor can raise the defense of compensation
Extinguishment of the principal obligation as a consequence of
w/ respect to the debt.
compensation carries w/ it the accessory obligations such as
Remedy of the assignee is against the assignor
guaranty.
Right to compensation may be waived by the debtor before or after the assignment
Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n) TOTAL AND PARTIAL COMPENSATIONS
WHERE COMPENSATION HAS TAKEN PLACE AFTER ASSIGNMENT
Applies to all the different kinds of compensation
3 cases of compensation after an assignment of rights made by the creditor
TOTAL 1.
Applies when the 2 debts are of the same amount; if they are of
2.
different amounts, compensation is total as regards the smaller debt, and partial only w/ respect to the larger debt.
Where the assignment is made w/ the consent of the debtor The assignment is made w/o the consent but w/ the knowledge of the debtor
3.
The assignment is w/o the knowledge of the debtor
Art. 1282. The parties may agree upon the compensation of debts which
Art. 1286. Compensation takes place by operation of law, even though the
are not yet due. (n)
debts may be payable at different places, but there shall be an indemnity
VOLUNTARY COMPENSATION
Exception to the general rule that only debts w/c are due and
for expenses of exchange or transportation to the place of payment. (1199a)
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN DEPOSITUM- a loan w/c creates the relationship of the debtor
and creditor
It is the substitution or change of an obligation by another, w/c extinguishes or modifies the first, either by changing its object or principal conditions, or or by
2.
Where one of the debts arises from a commodatum
substituting another in the place of the debtor, or by rd
Commodatum is a gratuitous contract whereby one of
subrogating a 3 person in the rights of the creditor.
the parties delivers to another something not
Juridical act w/ dual function.
consumable so that the latter may use the same for a
It does not operate as an absolute extinction in the
certain time and return it. 3.
sense that it ends w/ the extinguishment of an
Where one of the debts arises from a claim for support due by
obligation but only as a relative extinction because it
gratuitous title
creates a new one in place of the old w/c is thus only
Support comprises everything that is indispensable for
“modified”.
sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping w/ the
DUAL FUNCTION/PURPOSE OF NOVATION
financial capacity of the family. 4.
Where one of the debts consists in civil liability arising from a
Dependent on the nature of the change and the intention of the parties
penal offense 1.
EXTINCTIVE
Art. 1289. If a person should have against him several debts which are
When an old obligation is terminated by the creation of a new obligation that takes the place of the former
susceptible of compensation, the rules on the application of payments shall
because of the total incompatibility b/w the 2
apply to the order of the compensation. (1201)
obligations. RULES ON APPLICATION OF PAYMENTS APPLICABLE TO ORDER OF
TWIN
EFFECTS:
first,
extinguishing
an
existing
nd
COMPENSATION
obligation ; 2 ,creating a new one in its stead. 2.
COMPENSATION is similar to payment. If a debtor has various
MODIFICATORY
debts w/c are susceptible of compensation, he must inform the creditor w/c
The new agreement will not have the effect of extinguishing but merely supplement it or supplant
of them shall be the object of compensation. In case he fails to do so, then
some but not all of its provisions
the compensation shall eb applied to the most onerous obligation.
Obligation subsists to the extent it remains compatible w/ the amendatory agreement.
Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (1202a) CONSENT OF PARTIES NOT REQUIRED IN LEGAL COMPENSATION 1.
KINDS OF NOVATION 1.
Compensation occurs automatically by mere operation of law.
Even in the absence of agreement b/w the parties and
2.
According to origin: a)
Legal-by operation of law
b)
Conventional-by agreement of the parties
According to how it’s constituted:
even against their will
a)
Extinguishes reciprocally both debts as soon as they
b)
exist simultaneously, to the amount of their respective sums.
Takes place ipso jure from the day all the necessary
Implied-the old and the new obligations are essentially incompatible w/ each other
3.
According to the extent or effect: a)
requisites concur, w/o need of any conscious intent on the part of the parties and even w/o their knowledge,
Express-declared in unequivocal terms
Total/extinctive-old
obligation
is
completely
extinguished b)
Partial/modificatory-old obligation is merely modified
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN NOVATION OF JUDGMENT
The novation of a contract or judgment maybe subject to a suspensive condition.
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment
NOVATION W/ RESPECT TO CRIMINAL LIABILITY
by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)
Novation is not a mode of extinguishing criminal liability. It may prevent the rise of criminal liability as long as it occurs prior to the filing of
KINDS OF PERSONAL NOVATION 1.
Substitution – Substitution –when when the person o the debtor is substituted
2.
Subrogation – when a 3 person is subrogated in the rights of the
the criminal information in court. In other words, novation does not
rd
creditor
extinguish criminal liability but may only prevent its rise. KINDS OF SUBSTITUTION NOVATION NOT PRESUMED 1.
EXPROMISSION
Genrule: No form of words or writing is necessary to give effect to a novation
That w/c takes place when a 3
but it must be clearly and unmistakably established by express agreement or
initiative and w/o the knowledge or against the will of
by the acts of the parties, as novation is never presumed.
the original debtor assumes the latter’s obligation w/
rd
person of his own
the consent of the creditor. It logically requires the Even if novation were sufficiently shown, the presumptive rule is that the
consent of the 3
conditions attaced to the old obligation also attach to the new obligation. 2 WAYS OF EFFECTING CONVENTIONAL NOVATION 1.
person and the creditor. It is
essential that the old debtor be released from his obligation; otherwise, there is no expromision 2.
DELEGACION That w/c takes place when the creditor accepts a 3
By the express agreement of the parties or acts of equal or
rd
person to take the place of the debtor at the instance
equivalent import 2.
rd
of the latter. The creditor may w/hold approval. In
By the irreconcilable incompatibility of the 2 obligations w/each
delegacion, all the parties, the old debtor, the new
other in every material respect.
debtor and the creditor must agree In either of the 2 modes of substitution, the consent of the creditor is an
Thus, to effect an objective novation, it is imperative that the new obligation expressly declares that the old obligation is thereby extinguished, or that the new obligation be on every point incompatible w/ the new one. To effect a subjective novation by a change in the person of the debtor, it is necessary that the old debtor be released expressly from the obligation rd
and the 3 person or new debtor assumes his place in the relation. There is no novation w/o such release as the 3
rd
person who assumed the debtor’s
obligation becomes merely a co-debtor or surety. There could be novation if the parties in the new contract are not the same parties in the old contract.
indispensable requirement. RIGHT OF NEW DEBTOR WHO PAYS 1.
In expromision, the payment by the new debtor gives him the right to beneficial reimbursement(1236)
2.
If the payment was made w/ the consent of the original debtor or on his own initiative, the new debtor is entitled to reimbursement and subrogation (1237)
ACCEPTANCE BY CREDITOR OF PAYMENT FROM A 3
RD
PERSON
It does not imply the extinguishment of the liability of the 1
st
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN consisting in the substitution of a new debtor in lieu of
the old one. 4.
GENREAL RULE: The extinguishment of the principal obligation carries w/ it that of the accessory obligations
Involuntary novation by substitution of debtor By means of garnishment w/c is a species of
EXCEPTION: In the case of an accessory obligation created in favor of a 3 rd
rd
attachment. The remedy is merely a case of
person w/c remains in force unless said 3
involunatary novation by the substitution of one
novation. This is so bec. A person should not be prejudiced by the act of
creditor for another.
another w/o his consent.
SUBSTITUTE MUST BE PLACED IN THE SAME POSITION OF ORIGINAL DEBTOR
person gives his conset to the
Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any
Article 1293 means that it is not enough to extend the juridical
event. (n)
relation to that other person, but it is necessary to place the latter in the same position occupied by the original debtor who is released from the
EFFECT WHERE THE NEW OBLIGATION VOID
obligations. Article 1297 stresses one of the essential requirements of a novation, to wit: the new obligation must be valid. Consequently, the obligation contracted by a 3
rd
person to anwer fro the
General rule:
debtor, as in the case of suretyship, in the last analysis, does not work as a true novation, bec. The 3
rd
person is not put in the same position as the
There is no novation if the new obligation is void and therefore, the original
debtor-the latter continues in his same place and w/ the same obligation w/c
one shall subsist for the reason that the 2
is guaranteed by the former.
cannot extinguish or modify the first.
Art. 1294. If the substitution substitution is without the knowledge or against the will of
Exception:
nd
obligation being inexistent, it
the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original
Where the parties intended that the old obligation should be extinguished in any event.
debtor. (n) Art. 1295. The insolvency of the new debtor, who has been proposed by the
EFFECT WHERE THE NEW OBLIGATION VOIDABLE
original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. (1206a)
taken place, and the original one can be enforced, unless the intention of the parties is otherwise.
EFFECT OF NEW DEBTOR’S INSOLVENCY OR NON-FULFILLMENT NON -FULFILLMENT OF OBLIGATION. 1.
If the new obligation is only voidable, novation can take place. But the moment it is annulled, the novation must be considered as not having
Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. (1208a)
In expromision Under
194,
the
new
debtor’s
insolvency
or
nonfulfillment of the obligation will not revive the
EFFECT WHERE THE OLD OBLIGATIO VOID OR VOIDABLE
action of the creditor against the old debtor whose obligation is extinguished by the assumption of the debt
by
the
new
debtor.
Remember
that
in
expromision, the replacement of the old debtor is not made at his own initiative
A void obligation cannot be novated because there is nothing to novate. However, if the original obligation is only voidable, the novation is valid Art. 1299. If the original obligation was subject to a suspensive or
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ADA MAE D. ABELLERA ABELLERA 1-SANCHEZ ROMAN It contemplates full substitution such that it places the party
Subrogation takes place by operation of law even w/o the
subrogated in the shoes of the creditor, and he may use all means
consent of the parties. Subrogation is produced from payment w/c may be
w/c the creditor could employ to enforce payment
w/ or w/o the debtor’s knowledge or approval.
A subrogee cannot succeed to a right not possessed by the subrogor.
1.
When a creditor pays another creditor who is preffered
2.
When a 3
3.
When a 3 person w/ interest in the obligation pays even w/o the
KINDS OF SUBROGATION 1.
CONVENTIONAL
2.
person w/o interest in the obligation pays w/ the
approval of the debtor rd
knowledge of the debtor.
By express agreement of the original parties and the rd
rd
3 person
Art. 1303. Subrogation transfers to the persons subrogated the credit with
Must be clearly established inorder that it my take
all the rights thereto appertaining, either against the debtor or against third
place
person, be they guarantors or possessors of mortgages, subject to
Legal
stipulation in a conventional subrogation. (1212a)
w/o agreement but by operation of law
not presumed except in the cases expressly provided
EFFECT OF LEGAL SUBROGATION
by law
To transfer to the new creditor the credit and all the
Art. 1301. Conventional subrogation of a third person requires the consent
rights and actions that could have been exercised by
of the original parties and of the third person. (n)
the former creditor either against the the debtor or rd
against 3 persons, be they guarantors or mortgagors. CONSENT OF ALL THE PARTIES IN CONVENTIONAL SUBROGATION
EXCEPT only for the change in the person of the creditor, the obligation subsists in all respects as
1.
DEBTOR-because he becomes liable under the new obligation to a new creditor
2.
OLD OR ORIGINAL CREDITOR-because his right against the debtor is extinguished
3.
before the novation
NEW CREDITOR-because he may dislike or distrust the debtor
Effects of the conventional subrogation are subject to the stipulation of the parties.
CONVENTIONAL SUBROGATION AND ASSIGNMENT DISTINGUISHED
Effect of legal subrogation may not be modified by agreement
There are distinctions b/w the right to be subrogated and the right to reimbursement.
Articles 1300 and 1301 do noexclude the power of the creditor to
Art. 1304. A creditor, to whom partial payment has been made, may
transmit his rights w/o the consent of the debtor to another who would then
exercise his right for the remainder, and he shall be preferred to the person
have the right to proceed against the debtor. In this case, there is assignment