Overview
This lecture provides a detailed summary of the extinguishment of obligations under the Civil Code of the Philippines. It focuses on the different modes by which obligations are terminated, with emphasis on payment or performance, and explains key legal articles that govern how and when obligations are extinguished.
Modes of Extinguishment of Obligations
- Obligations may be extinguished through several modes, as provided by law:
- Payment or Performance: The most common mode, involving the fulfillment of what is due.
- Loss of the Thing Due: When the object of the obligation is lost or destroyed under certain conditions.
- Condonation or Remission of Debt: The creditor voluntarily forgives the debt.
- Confusion or Merger: The roles of debtor and creditor merge in one person.
- Compensation: Mutual debts are set off against each other.
- Novation: The original obligation is replaced by a new one.
- Other modes may exist as provided by law, but these are the principal ones discussed in the Civil Code.
Payment or Performance
- Definition: Payment is not limited to the delivery of money; it also includes the complete performance of any obligation, whether to give, to do, or not to do.
- Who Must Pay: The debtor or a third party may pay, but payment must be made to the person designated by the contract, their successor, or an authorized representative.
- To Whom Payment Must Be Made: Payment is valid only if made to the creditor, their legal successor, or a person authorized to receive it. Payment to an unauthorized person does not extinguish the obligation unless the creditor ratifies it or benefits from it.
- Partial Performance: Generally, partial performance does not extinguish the obligation unless the creditor accepts it or there is an agreement to that effect.
- Place and Time of Payment: Payment must be made at the place and time stipulated in the contract. If not specified, payment is made at the creditor’s domicile and when the obligation becomes due.
- Proof of Payment: The debtor may demand a receipt or other proof of payment from the creditor.
Requisites & Rules on Payment
- The debtor must have the capacity to pay and the creditor must have the capacity to receive.
- Payment must be made in legal tender unless otherwise stipulated.
- A debt paid by delivering a check or other instrument is not considered paid until cashed or cleared.
- If the creditor receives payment in another form and accepts it, the obligation is extinguished.
- Payment must generally be made at the place agreed upon, or if not stipulated, at the creditor’s domicile.
Special Cases of Payment
- Subrogation: Rights of the creditor are transferred to the party who pays the obligation.
- Dation in payment (dación en pago): Debtor delivers property to creditor as payment for a debt, extinguishing the obligation up to the value of the property.
Parties Capable of Making/Receiving Payment
- Payment by an incapacitated person is valid if accepted by the creditor in good faith.
- Payment to an unauthorized person is valid if the creditor ratifies or benefits from it.
Loss of the Thing Due
- General Rule: If the specific thing that is the object of the obligation is lost or destroyed without the debtor’s fault and before the debtor is in delay, the obligation is extinguished.
- Exceptions:
- If the loss is due to the debtor’s fault, the obligation remains.
- If the loss occurs after the debtor has incurred in delay, the obligation is not extinguished.
- Kinds of Loss: Loss may be physical destruction, legal impossibility, or when the thing goes out of commerce.
- Effect on Generic Obligations: If the obligation is to deliver a generic thing, loss does not extinguish the obligation, as generic things do not perish.
Condonation or Remission of Debt
- Definition: Condonation or remission is the gratuitous abandonment or forgiveness of a debt by the creditor, resulting in the extinguishment of the obligation.
- Requirements:
- Must be accepted by the debtor.
- If the remission involves a formal contract (e.g., real property), it must comply with the formalities required for donations.
- Kinds:
- Express: Clearly and unmistakably made known by the creditor.
- Implied: Inferred from the creditor’s acts that are incompatible with the existence of the obligation.
- Partial or Total: Remission may be total (entire obligation) or partial (only a part of the obligation).
Confusion or Merger
- Definition: Confusion or merger occurs when the qualities of creditor and debtor are merged in the same person with respect to the same obligation.
- Effect: The obligation is extinguished because one cannot be both creditor and debtor at the same time.
- Total or Partial:
- Total Confusion: The entire obligation is extinguished.
- Partial Confusion: Only the part affected by the merger is extinguished; the rest remains enforceable.
- Examples: Inheritance, assignment, or other legal means where the debtor acquires the rights of the creditor.
Compensation
- Definition: Compensation is a mode of extinguishing obligations when two persons are reciprocally debtor and creditor of each other.
- Types:
- Legal Compensation: Takes place by operation of law when all legal requisites are present.
- Voluntary Compensation: Occurs by agreement of the parties, even if not all legal requisites are present.
- Judicial Compensation: Declared by the court in a case where compensation is proper.
- Facultative Compensation: May be set up by one party, but not necessarily by both.
- Requisites for Legal Compensation:
- Both parties are principal creditors and debtors of each other.
- Both debts consist of a sum of money or consumable goods of the same kind and quality.
- Both debts are due, liquidated, and demandable.
- Neither debt is subject to retention or controversy by third parties.
- Effect: Debts are extinguished to the concurrent amount; if one debt is larger, the balance remains.
Novation
- Definition: Novation is the substitution of a new obligation for an existing one, which is thereby extinguished.
- Requisites:
- A previous valid obligation.
- Agreement of the parties to a new obligation.
- Extinguishment of the old obligation.
- Creation of a valid new obligation.
- Kinds:
- Objective/Real Novation: Change in the object or principal conditions.
- Subjective/Personal Novation: Change in the parties, either the debtor or creditor.
- Mixed Novation: Combination of objective and subjective changes.
- Intention to Novate: There must be a clear and unequivocal intention to extinguish the old obligation and create a new one.
Key Terms & Definitions
- Extinguishment of Obligations: The legal process by which obligations are terminated or nullified, resulting in the release of the parties from their duties.
- Payment/Performance: The act of fulfilling an obligation, either by delivering money or by doing what is required under the contract.
- Condonation/Remission: The voluntary and gratuitous forgiveness of a debt by the creditor, accepted by the debtor.
- Confusion/Merger: The uniting of the roles of debtor and creditor in the same person, extinguishing the obligation.
- Compensation: The offsetting of debts between two parties who are reciprocally debtors and creditors, resulting in the extinguishment of their respective obligations to the extent of their concurrence.
- Novation: The creation of a new obligation to replace or modify an existing one, with the clear intention of extinguishing the original obligation.
Action Items / Next Steps
- Review the relevant Civil Code articles on extinguishment of obligations, focusing on payment, loss of the thing due, condonation or remission, confusion or merger, compensation, and novation.
- Prepare and analyze case examples or hypothetical scenarios that illustrate each mode of extinguishment for class discussion.
- Study the specific requirements and effects of each mode to understand how and when obligations are considered legally extinguished.
- Familiarize yourself with the distinctions between the different modes, especially in terms of their requisites and legal consequences.