OBLICON QUIZ 3 REVIEWER

OBLIGATIONS ARE EXTINGUISHED BY

 Payment or Performance
o Dacion en Pago
o Cession
o Application of Payment
o Tender of Payment and Consignation
 Loss of the thing due
 Condonation or Remission
 Confusion or Merger
 Compensation
 Novation
 Annulment – just like marriage in which it is declared void. Only valid until annulled. Declaration of nullity
means a void marriage since the start such as a 17 year-old in marriage, and forgery.
 Rescission (Cancellation)
 Fulfillment of a resolutory condition
 Arrival of a resolutory period
 Prescription
 Death – if obligation is personal, it is extinguished. For example, if MJ is to perform a world tour, it is
extinguished after death; versus in the case of real inheritance where it is not extinguished.

FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010

 Insolvent – financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due
in the ordinary course of business or has liabilities that are greater than its or his assets.
 Insolvent debtors may be permitted to suspend payments, apply for rehabilitation of his debts and
liabilities, or apply to be discharged from his debts and liabilities.

PAYMENT OR PERFORMANCE
 Payment – not only the delivery of money but also the performance of obligation.
 General Rule: a debt shall not be understood to have been paid unless the thing in which the obligation
consists has been completely delivered, rendered. Exceptions are
o Obligation has been substantially performed in good faith, the debtor may recover as though
there had been a strict and complete fulfillment less damages suffered by the creditor.
 C enters into a contract with D, where D will edit the 500-page book of C for P100. He
only edits 450 pages so D can still recover payment from C, less the amount of damages
that C will sustain for unfinished or irregular performance.
o When creditor accepts performance, knowing its inc ompleteness, and without expressing any
protest or objection, it is deemed fully complied with
 D is to remodel C’s unit, to be planned by Vik. D starts to remodel but disregards Vik’s
plans. C accepts the unit.
 Who may pay the obligation?
 The Debtor or his representative
 And third person who has an interest in the fulfillment of an obligation.
o Guarantor – a person who has an interest in the fulfillment
o Any third person who has no interest but was mutually agreed upon or authorized by both parties
to pay.
 If his payment is with the knowledge of the D, the third person is entitled to full
reimbursement and subrogation.
  Subrogation – person who pays for another acquires not only the rights to be
reimbursed for what he has paid but also the other rights attached
(mortgage/guarantors) to the obligation originally contracted by the debtor.
 It contemplates full substitution that it placed the party subrogated in the shoes
of the creditor, and he may use all means which the creditor could employ to
enforce payment.
o Any third person who has no interest and was not agreed upon but the offer to pay was acquired
by the Creditor
 If any other than third person pays, Creditor has the choice whether to accept payment
or not.
 Option to receive payment belongs to the Creditor unless there is an agreement that he
must accept or not.
 If payment is without knowledge of the Debtor, the third person is entitled only to
recover the amount that has been beneficial to the Debtor.
 If D paid part and third person still paid the entire original amount, the third
person an only recover the amount that benefitted the Debtor. Third person’s
remedy is to proceed against the Creditor.
o If the third person does not intend to be reimbursed by the D, his payment made is deemed a
donation, which requires the D’s consent. If D will not accept the donation, he can compel the
third person to accept the reimbursement. Without the debtor’s acceptance, the donation is not
valid but the C’s payment is valid. If donation is rejected by the D, the third person cannot anymore
demand the third person cannot demand the money paid to the C.
 Who may receive payment?
 The Creditor, his successor and his authorized representative
o Payment be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.
o Payment to the creditor will not be valid when:
 Creditor is incapacitated to administer his property
 Unless he has kept the thing delivered, or as the payment has been
beneficial to him.
 There’s judicial order not to pay the Creditor, then the Debtor must not pay.
 Payment shall not be valid.
 Debtor must comply with court orders if proper notice of garnishment is
received.
 Any person in possession of the credit
o Payment in good faith to any person with credit releases the debtor.
o The one who possesses a negotiable instrument payable to “bearer” must be paid. But
before, the debtor must exercise prudence and good faith to ascertain the right of the note’s
holder.
 Any third person, provided the payment had redounded to the C’s benefit
o Debtor must prove payment benefited the Creditor.
o Does not need to prove when:
 The third person acquires the creditor’s rights after payment
 Jack owes Daniel P100. When due, he pays Nolan thinking he is authorized
to receive payment. After, Daniel assigned Jack’s indebtedness to Nolan.
 When the creditor ratifies payment to the third person
 Jack owes Daniel P100. When due, he pays Nolan thinking he is authorized
to receive payment. After, Jack informed Daniel that he gave the money to
Nolan and Daniel replied tat it is okay to give money to Nolan.
 When the debtor has been led to believe that the creditor has authority to receive
payment by the creditor’s conduct
  If in the presence of Daniel, Nolan told Jack that Jack could give the
payment owing to Daniel to Nolan, not disputed by Daniel.

WHERE PAYMENTS MAY BE MADE?

 In the place designated in the obligation.
 No express stipulation and if it is to deliver a determinate thing, payment be made wherever the thing
might be when obligation was constituted.
 In any other case, it shall be at the domicile of the debtor.
o Additional expenses if he changes his domicile in bad faith or after incurred in delay.

HOW MAY THE DEBTOR MAKE PAYMENT?

 Must be complete.
 Free disposal of the thing due and capacity to alienate to be valid.
o Free disposal of the thing due – ownership over the thing; 100% transferred
 Magnanakaw sold the cellphone he steals yet the owner still has 100% right to the
cellphone’s ownership.
o Capacity to alienate – right to dispose
o Even if creditor accepted it, it may still be annulled by court.
 Obligation to give a specific thing – Debtor cannot compel Creditor to receive a different prestation. In
obligation to do or not to do, Debtor cannot substitute an act or forbearance without the Creditor’s
consent.
o Ford Escape Example – Creditor can refuse even if you offer Expedition.
 Obligation to give a generic thing – cannot be of superior or inferior quality. Purpose of obligation to be
taken into consideration: RULE OF MEDIUM QUALITY
o Horse example: Racing elegant horse vs kalesa
 Extrajudicial expenses on Debtor, unless otherwise stipulated.
 The creditor can’t be compelled to partially receive prestation in which obligation consists. Debtor also
can’t make partial payments unless stipulated.
o When debt is part liquidated, creditor may demand and debtor may effect the payment of
liquidated indebtedness w/o waiting for other’s liquidation.
 D promises C P100 and 10% of proceeds of sale of D’s house and lot on 12/31. By 1/1, C
can demand P100 since it’s already fixed, no need to wait for the other.
 Monetary debt in currency stipulated, and if not possible, it would be legal tender in the PH.
o Legal tender – money in which the debtor can compel the creditor to receive.
o Delivery of promissory notes produces the effect of payments when:
 They have been cashed.
 Have been impaired through the creditor’s fault
 Holder of negotiable instrument should make proper protest to liable person in
the event of dishonor. If creditor does not, he cannot recover anymore.
o Cashier’s check – check which has been cleared and credited to the account of the creditor is
equivalent to a delivery to creditor in cash equal to the amount credited to his account.
 I’m going to buy your car for P1M. Will you accept check? No, because it might bounce
and might have no value, so it is not legal tender, whereas the cashier’s check. It is always
best to meet at a bank.
 During extraordinary deflation / inflation of currency, value during establishment of obligation shall be
basis.
o Extraordinary – unusual or beyond common fluctuation in the value which the parties could not
have reasonably foreseen or beyond contemplation.

SPECIAL FORM OF PAYMENTS

 Dacion en Pago or Dation in Payment
 o Dacion – a property is alienated by the Debtor in favor of the Creditor to satisfy indebtedness,
acceptable by the Creditor.
o The debtor explores possibility of paying money by delivering property/thing, only if creditor
accepts.
 Cession
o Abandonment of all debtor’s property to benefit creditors so C may apply the proceeds to satisfy
credit.
o Debtor cedes or assigns all property to his creditor in payment of debt.
o Here, the debtor is insolvent so he assigns properties unlike dacion. Proceeds satisfies
indebtedness and excess given back. Debtor must still pay if less.
o May be conventional/voluntary or judicial/legal
o Creditor will not become owner of the properties unlike in dacion.
 Application of Payments
o The right given to a debtor to choose which of two or more debts he desires to pay to the same
creditor.
 Done when money not sufficient to pay all debts.
 You have a friend who always borrows money from you, an doesn’t pay.
o Requisites:
 There is one debtor and creditor.
 There are several debts.
 The debts are of the same kinds.
 The debts are all due.
 Except when parties stipulate or application is made by the party with the
benefit of the period.
o Rule in Application of Payments
 Debtor determines to which the payment will be applied.
 If D does not determine, C does, which is usually indicated in the issued receipt.
 When above doesn’t apply, most onerous debts among others due shall be satisfied
(debts with interest; subject to mortgage or pledge; with penal clause)
 If debts are of the same nature and burden, payment shall be applied to all
proportionately.
 If debt has interest, principal payment shall be last after interest payment.
 Tender of Payment and Consignation
o Tender of Payment – the definitive act of offering the creditor what is due with the demand that
the creditor accepts the same – with intent, ability and capability to make good such offer, which
must be absolute and must cover the amount due.
o Consignation – the act of depositing the thing due with the court whenever the creditor cannot
accept or refuses to accept and requires a prior tender of payment.
 Expenses chargeable to the creditor.
 Tuition Fee Balance Example – Is it okay if someone pays for it? Yes, with reimbursement.
If he doesn’t accept reimbursement, go to courts. Kung ayaw talaga, leave it in court and
obligation is extinguished.
o When obligation is due and debtor is willing to pay but creditor refuses without just cause to
accept, debtor may consign the said amount to the court.
o Rules of consignation:
 Must be first announced to the person interested in the obligation’s fulfillment.
 Debtor must inform Creditor won’t accept, then D will consign it to court.
 Unnecessary tender of payment and debtor can go straight to consign:
o Absent or unknown creditor
o Incapacitated creditor
o Creditor refuses to give a receipt
o 2 or more persons claim the right to collect
 o Lost title of obligation
 Debtor initiates an action in court wherein he proves that:
 There’s indebtedness, an offer to pay, a refusal to accept payment, and demand
to accept otherwise an action for consignation will be filed in Court.
 After due notice and hearing, it shall be made by depositing what is due at the disposal
of Judicial Authority.
 Interested parties shall also be notified
 Creditor will be informed that thing due is already in court’s disposal.
 Debtor may ask the Judge to order the cancellation of obligation.
o Expenses chargeable against Creditor – fault lies with him since consignation was made.
o Debtor can withdraw the deposit and obligation remains in force, before the creditor accepts it or
before judicial declaration has been made.
o After it, debtor cannot withdraw anymore unless the creditor will authorize such withdrawal.
 When authority is given, C loses every preference which he may have over the thing.
Codebtors, guarantors, and sureties are also released.
 D owed C P100, with G as the guarantor. When due, D offered to pay but C
refuses to accept so D initiates consignation and money is deposited in court.
Later, D needs money so when he saw C, he tries to borrow again to which C
informs D that he can always get the money in court. When D withdraws the
money with C’s consent, C loses preference over indebtedness and G is also
released from the obligation.

LOSS OF THE THING DUE

 Obligation which consists in the delivery of a determinate thing is extinguished when lost or destroyed
without the debtor’s fault and before it was incurred in delay.
 Loss requisite:
o Thing lost must be specific
 Obligation to deliver a generic thing – loss or destruction of anything of the same kind
does not extinguish the obligation.
o Thing was lost without debtor’s fault
o Debtor not in delay
 Specific thing lost due to fortuitous event even if:
o Law or stipulation provides
o Nature requires the assumption of risk
o When debt of certain thing and determinate proceeds due to criminal offense, debtor shall not be
exempted from the payment of its price, whatever may be the cause.
 Unless he refuses to accept without justification.

SOME IMPORTANT PRINCIPLES

 Partial loss – court determines whether loss is important to extinguish obligation.
o You buy kalesa in the farm and leg is broken, but it doesn’t matter compared to when it is a racing
horse due to its primary purpose to race.
o A prohibited drug becomes illegal only when prohibited.
 Debtor is released from obligation in case prestation is legally or physically impossible without the debtor’s
fault. There is no obligation to do an impossible thing.
 When service has become so difficult, D may be released from obligation in whole or in part.
o Loss includes impossibility of performance.
o Difficulty must be manifestly beyond what the parties contemplate when entered into
agreement.
 Volcanic eruption and house is built and gets destroyed – may be engineer’s fault.
 When the specific thing is lost in debtor’s possession, it is presumed that the loss was due to his fault.
  Francis loses a cellphone he was supposed to deliver, it is presumed to be his fault so he
must prove himself innocent / it was due to a fortuitous event.
o Won’t apply during earthquake, flood, storm, or other natural calamity.
 Must be proven.
o Debtor and creditor can present proof to contrary to avoid his liability or protect right.
 Extinguished obligation due to loss, the creditor has all rights of action which debtor may have against
third persons by reason of the loss.
o When all requisites to extinguish obligation are present, Debtor is released. But Creditor can still
proceed against the person who caused lost and recover damages.

CONDONATION OR REMISSION OF THE DEBT

 Condonation – the act of liberality by which the obligee who receives no price, renounces the enforcement
of obligation, which is extinguished entirely or in that part or aspect of the same to which remission offers.
Gratuitous abandonment by creditor of his right.
o Forgiveness of indebtedness when you decide not to collect anymore.
 Requires acceptance by the creditor, either expressly or impliedly.
 Condonation requisites:
o Obligation must be due and demandable.
o Must be gratuitous.
o Must not be inofficious.
 Art 750 – Donation may comprehend all present property of donor, or part, provided he
reserves in full ownership to support himself/relatives. Without reservation, donation
reduced.
 751 – Donation can’t comprehend future property.
 752 – No person can give or receive more. It shall be inofficious in all that it may exceed
this limitation.
o Must be accepted by debtor.
o Must conform with the forms of donation.
 748 – Donation of movables may be made orally or in writing. Oral requires simultaneous
delivery of thing or document representing the right donated. If value of personal
property donated exceeds P5K, donation and acceptance shall be in writing, otherwise
would be void.
 749 – Donation of immovable may be valid if made in public document specifying the
property and value of charges. Acceptance may be made in the same deed or separate
public docu, but shall not take effect unless done during donor’s lifetime. If made in
separate, donor shall be notified in authentic form, and be noted in both instryments.
o Can be complete or partial.
 It’s total when entire obligation is extinguished. Partial refers only to principal or to the
accessory obligation or to an aspect which affects the debtor as for instance solidarity.
 Renunciation of principal debt shall extinguish accessory obligations, but waiver shall
leave the former in force.
 Condonation of Principal = Condonation of Accessory
 Condonation of Accessory =/ Condonation of Principal
 Presumed that accessory obligation of pledge is remitted when thing pledged after
delivery to the creditor is found in debtor’s possession or of a third person who owns the
thing.
 Loan with pledge – there are 2 contacts – contract of loan and pledge. If thing
pledged is returned to debtor then contract of pledge is extinguished but not
the contract of loan.
o Can be express or implied.
 Delivery of private document evidencing a credit made voluntarily by the creditor to the
debtor implies renunciation of the action which the creditor has against debtor.
  If heirs of creditor claims condonation as inofficious, debtor can raise defense
that payment was made.
 Whenever private docu which the debt appears is found with debtor, it is
presumed that creditor delivers it voluntarily, unless contrary is proved.
o D issues a P/N in favor of C to evidence indebtedness. Before due, P/N
already with D. Presumed that it was delivered by C to D, with intention
to forgive/waive right over indebtedness.

CONFUSION OR MERGER OF RIGHTS

 Confusion – meeting in one and the same person of the qualities of creditor and debtor with respect to one
and the same obligation.
 Obligation is extinguished from the time character of creditor and debtor are merged in the same person.
 Requisites of Confusion:
o Merger of character of creditor and debtor must be the same person
o Must take place in the person of either the principal creditor or debtor.
o Must be complete and definite. (complete meeting of qualities)
 Merger which takes place in the person of principal debtor or creditor benefits the guarantors. Confusion,
takes place in the person of any of the latter, does not extinguish the obligation.
 Confusion doesn’t extinguish a joint obligation except as regards the share corresponding to the creditor
or debtor in whom the two characters concur.
o E and N borrowed P200 from D and C, with G as guarantor. To evidence indebtedness, E and N
issued a negotiable note to D and C, which ended up in the possession of G, making him holder
for value. Here, there is no confusion to extinguish obligation – E and N remain debtors and G is
new creditor. Only contract of guarantee was extinguished. Suppose G negotiated the note to E,
the obligation to pay is not entirely extinguished, “partial confusion” as E is concerned. Here, E
and N remain debtors and E is new creditor. Only debt to E is extinguished.

COMPENSATION
 Compensation – takes place when 2 persons, in their own right, are creditor and debtor of each other (May
utang ka, I owe you and you owe me)
 Kinds of compensation:
o Voluntary
 Parties agree to mutually set-off indebtedness to each other.
 Parties may agree upon the compensation of debts which are not yet due.
 May agree that money debt be compensated by obligation to deliver a thing.
o Legal
 Operation of law and extinguishes both debts to the concurrent amount, even though
the creditors and debtors are not aware of the compensation. (Art 1279)
 Proper legal compensation:
 Each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other.
o “A owes B and B owes A and compensation will not be proper if A owes
B with G as guarantor and G owes A.”
o Guarantor may set-up compensation as regards what the creditor may
owe the principal debtor.
 Both debts consists 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.
 That the two debts are due.
 That they be liquidated and demandable.
o Liquidated – the amount of which may be determined by a simple
arithmetical operation.
 o Claim is liquidated when amount and time of payment is fixed, if
acknowledged by debtor, although not in writing.
 Over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
o Retention – application of credit of one of the parties to the satisfaction
of the claims of a third person.
o Controversy – third person claims to be the creditor.
 C owes D P150 due Sept. D owes C P150 due Oct. Victoria, a
creditor of C, garnished receivable of C from D.
o Judicial
 Suit over an obligation has claim for damages, may be set off by proving right to
damages and amount thereof.
 Judge orders party to compensate claim over the other.
 You have a dog who is shot by neighbor, you go to judge. There is always a
reason for an action so neighbor says dog ate his orchids, so not liable for
damages.
 Defendant in a suit may raise counterclaim against Plantiff that may set-off or
compensate claims.
 May be total (2 debts of same amount) or partial.
 When one or both debts are rescissible or voidable, they may be compensated against each other before
they are judicially rescinded or avoided.