Republic of the Philippines

DON HONORIO VENTURA STATE UNIVERSITY

Villa de Bacolor, Pampanga
Mexico Extension Campus

Module 3
Modes of Extinguishing an Obligation
1. Payment or performance
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger of rights of the debtor and the creditor.
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription
11. Death – in personal obligations;
12. Mutual desistance/ withdrawal
13. Arrival of resolutory period
14. Compromise
15. Impossibility of fulfillment.
16. Happening of fortuitous event

PAYMENT OR PERFORMANCE – the delivery of the sum or thing due or the performance of the
obligation in any other manner.

General Rule: Creditor is not bound to accept payment or performance by a third person.
Exceptions:
1. When made by a third person who has an interest in the fulfillment of the obligation
2. Contrary stipulation

Rights of the third party who paid the obligation of another:

1. Payment with the knowledge and consent of the debtor –
a. Can recover entire amount paid;
b. Can be subrogated to all of the rights to the creditor.

2. Payment without the knowledge or against the will of the debtor – can recover only insofar as
payment has been made beneficial to the debtor.

Rules in Monetary Obligations:

1. Payment in cash – must be made in the currency stipulated, if not possible, then in the legal tender
in the Philippines.
2. Payment in check or another negotiable instrument – not considered payment, they are not
considered legal tender and may be refused by the creditor
Exceptions:
a. When the document has been cashed
b. When it had been impaired through the fault of the creditor

APPLICATION OF PAYMENT – designation of the debt to which the payment must be applied when the debtor
has several obligations of the same kind in favor of the same creditor.

Requisites:
1. One debtor and one creditor
2. Two or more debts of the same kind
3. All debts must be due
4. Amount paid by the debtor must not be sufficient to cover all debts.

DATION IN PAYMENT (dacion en pago)

- Property alienated by the debtor to the creditor in satisfaction of the debt in money; the transmission of the
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the
obligation
- Governed by the law on Sales
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

PAYMENT BY CESSION (cession en pago)

- Debtor abandons all of his properties for the benefit of his creditors in order that from the proceeds thereof,
the latter may obtain payment of their credits.

DATION IN PAYMENT PAYMENT IN CESSION

1. one creditor 1. plurality of creditors.
2. not necessarily in state of financial difficulty 2. debtor must be partially or relatively insolvent
3. thing delivered which is considered as equivalent of 3. universality of property of debtor is what is ceded.
performance
4. payment extinguished obligation to the extent of the 4. merely releases debtor for net proceeds of things
value of the thing delivered as agreed upon, proved or ceded or assigned, unless there is contrary intention
implied from the conduct of the creditor.

CONSIGNATION
- Deposits of the object of the obligation in a competent court in accordance with the rules prescribed by law
after refusal or inability of the creditor to accept the tender of payment.

Rule: Consignation shall produce effects of payment only if there is a valid tender of payment

Exceptions:
1. Creditor is absent or unknown, or does not appear at the place of payment
2. Creditor is incapacitated to receive payment at the time it is due.
3. When two or more persons claim the right to collect.
4. When the title of the obligation has been lost
5. When without just causes the creditor refuses to give a receipt.

LOSS OF THE THING DUE

A thing is considered loss when
1. It perishes
2. Goes out of commerce.
3. Disappears in such a way that its existence is unknown or it cannot be recovered.

EFFECT OF LOSS
1. In obligation to give Determinate/Specific Things: will extinguish the obligation if the thing is lost.
Except:
a. When by law, obligor is liable even for fortuitous event;
b. When by stipulation, obligor is liable even for fortuitous event;
c. When the nature of the obligation requires the assumption of risk;
d. When the loss of the thing is due partly to the fault of the debtor;
e. When the loss of the thig occurs after the debtor incurred in delay.
f. When the debtor promised to deliver the same thing to two or more person who do not have the
same interest.
g. When the debt of a certain and determinate thing proceeds from a criminal offense.

2. In obligation to give Generic Thing – obligation is not extinguished; the genus of a thing cannot perish.
Exception: in case of a generic obligation whose object is a particular class or group with specific or
determinate qualities (limited generic obligations).

3. In obligation to DO: Obligation is extinguished when the prestation becomes legally or physically
impossible.

REMISSION OR CONDONATION
- The gratuitous abandonment by the creditor of his right against the debtor. It is thus a form of donation

Requisites:
1. There must be an agreement
2. The parties must be capacitated
3. There must be a subject matter
4. The cause or consideration is generosity/gratuitous
5. Obligation is demandable at the time of remission
6. Remission must not be inofficious;
7. Must be accepted by the obligor
8. If made expressly, it must complu with the forms of donation.

CONFUSION OR MERGER OF RIGHTS

- Merger of the characteristics of the creditor and the debtor in one and the same person by virtue of which the
obligation is extinguished.
 Republic of the Philippines
DON HONORIO VENTURA STATE UNIVERSITY
Villa de Bacolor, Pampanga
Mexico Extension Campus

COMPENSATION
- Extinguishment in the concurrent amount of the obligation of those persons who are reciprocally debtors and
creditors of each other

Requisites of compensation:
1. That each one of the obligors be bound principally. And that he be at the same time a principal creditor of the
other.
2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been sated.
3. That the debts be due.
4. That they be liquidated and demandable.
5. That over neither of them there be any retention or controversy, commenced by third persons, and
communicated in due time to the debtor.

COMPENSATION PAYMENT
1. Takes effect by operation of law 1. takes effect by action of the parties.
2. Capacity to give and to acquire not necessary 2. capacity to give and to acquire essential
COMPENSATION CONFUSION
1. Two persons who are mutual creditors of each 1. one person where qualities of debtor and creditor are
other merged
2. There must be at least two obligations 2. only one obligation

Debts Not Susceptible of Compensation

1. Debts arising from contract of deposit;
2. Debts arising from contracts of commodatum
3. Claims for support due by gratuitous title;
4. Obligation arising from criminal offense
5. Certain obligations in favor of government

NOVATION
- Substitution or change of an obligation by another, resulting in the extinguishment or modification either by
a. Changing the object or principal conditions (objective)
b. Substituting another in place of debtor (passive subjective)
c. By subrogating a third person in the rights of the creditor (active subjective)

Requisites:
1. A previous valid obligation
2. Capacity and intention of the parties to modify or extinguish the obligation
3. The modification or extinguishment of the obligation
4. The creation of a new and valid obligation

Kinds of Novation:
a. Legal or conventional
b. Real, personal, or mixed

Two forms of Subrogating a Third Person in the Rights of the Creditor

Expromission – substitution of the old debtor by a third person without the knowledge or against the will of
the old debtor but the third person acts on his own initiative to assume the debtor’s obligation with the consent
of the creditor. It is essential that the old debtor be release from his obligation.

Delegacion – substitution of the old debtor, when the creditor accepts a third person to take the place of the
debtor at the instance of the latter. The creditor may withhold approval. All parties, the old debtor, the new
debtor and the creditor must agree.

General Rule - subrogation cannot be presumed

Except
1. Creditor pays another creditor who is preferred, without debtor’s knowledge
2. A third person not interested in the obligation, pays with the express or tacit approval of the debtor.
3. When even without the debtor’s knowledge, a person interested in the fulfillment of the obligation pays,
without prejudice to the effects of confusion as to the latter’s share.

PREPARED BY

ELDUZ KIM S. CAPULI

Instructor 1