Chapter IV. Extinguishment of Obligations
PARTIAL IMPOSSIBILITY
1. Courts shall determine whether it is so important as to extinguish the obligation.
2. If debtor has performed part of the obligation when impossibility occurred, creditor must pay the part done as long as he benefits from it.
3. If debtor received full payment from creditor, he must return excess amount corresponding to part which was impossible to perform.
Doctrine of Unforeseen Events
When the service has become so difficult as to be manifestly beyond the contemplation of all the parties, the obligor may be released in whole or in part (De Leon, 2003).
Requisites:
1. Event could not have been foreseen at the time of the constitution of the contract.
2. Event makes performance extremely difficult but not impossible.
3. Event not due to any act of the parties.
4. Contract is for future prestation.
III. Condonation or Remission of the Debt
CONDONATION: An act of liberality, by virtue of which, without receiving any equivalent, creditor renounces the enforcement of the obligation.
The obligation is extinguished either in whole or in such part of the same which to remission refers.
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Requisites
1. Debt must be existing and demandable 2. Renunciation must be gratuitous; without
any consideration
3. Debtor must accept the remission Effect
Art. 1273: Renunciation of the principal debt shall extinguish the accessory obligations, but remission of the latter leaves the principal obligation in force.
Presumptions
Arts. 1271, 1272, 1274:
Whenever the private document in which the debt is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless contrary is proved.
Delivery of a private document evidencing credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action of creditor against the latter.
Kinds
1. As to form (Art. 1270)
Express: made formally; in accordance with forms of ordinary donations
Implied: inferred from the act of the parties
2. As to extent
Total: entire obligation
Partial: may refer only to amount of indebtedness, or to an accessory obligation, or to some other aspect of the obligation
3. As to constitution
Inter vivos: effective during the lifetime of the creditor
Mortis causa: effective upon death of the creditor; must be contained in a will or testament
IV. Confusion or Merger of Rights
CONFUSION: The meeting in one person of the qualities of creditor and debtor of the same obligation.
Requisites
1. It should take place between principal debtor and creditor
2. It must be complete and definite- Parties must meet all the qualities of creditor and debtor in the obligation/ in the part affected.
Effects
Arts. 1275- 1277:
1. The obligation is extinguished from the time the characters of the debtor and creditor are merged in the same person.
2. In joint obligations, confusion does not extinguish the obligation except as regards the corresponding share of the creditor or debtor in whom the two characters concur.
3. In solidary obligations, confusion in one of the solidary debtors extinguishes the entire obligation.
4. Obligation is not extinguished when confusion takes place in the person of subsidiary debtor (e.g. guarantor), but merger in the person of the principal debtor shall benefit the former.
V. Compensation
COMPENSATION: Offsetting of two obligations which are reciprocally extinguished if they are of the same value, or extinguished to the concurrent amount if of different values. (Asked in ’80, ’81, ’98, and ’02)
Compensation Confusion
There must always be 2 obligations
Involves only one obligation
There are 2 persons who are mutually debtors and creditors of each other in 2 separate obligations, each arising from the same cause.
There is only one person whom the characters of the creditor and debtor meet
Kinds
1. As to extent
Total: Debts are of the same amount
Partial: Amounts are not equal 2. As to origin
Legal: takes place by operation of law
Conventional: parties agree to compensate their mutual obligations even when some requisite in Art. 1279 is lacking (Art. 1282).
Judicial: decreed by court when there is counterclaim; effective upon final judgment (Art. 1283).
Facultative: when it can be claimed by one of the parties who, however, has the right to object to it.
CIVIL LAW REVIEWER Chapter IV. EXTINGUISHMENT of OBLIGATIONS
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Requisites Effects
1. Each obligor is bound principally, and at the same time a principal creditor of the other
2. Both debts must consist in a sum of money, or if the things due are FUNGIBLE, of the same kind & quality 3. Both debts are due 4. Debts are liquidated
and demandable 5. There must be no
retention or controversy over either of the debts, commenced by 3rd persons and communicated in due time to the debtor
6. Compensation is not prohibited by law
1. Effects rise from the moment all the requisites concur.
2. Debtor claiming its benefits must prove compensation; once proven, effects retroact from the moment when the requisites concurred.
3. Both debts are extinguished to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation.
4. Accessory
obligations are also extinguished.
Compensation is prohibited in:
1. Contracts of depositum 2. Contracts of commodatum
3. Future support due by gratuitous title 4. Civil liability arising from a penal offense 5. Obligations due to the government
6. Damage caused to the partnership by a partner
ASSIGNMENT OF CREDIT (Art. 1285):
No effect and does not bind the debtor unless and until the latter is notified of the assignment or learns of it.
With Debtor’s
Debtor may set up credit but not of subsequent ones
Debtor may setup
compensation of all credits (maturing) prior
to the
assignment and also latter ones until he had knowledge of the assignment.
Facultative compensation: Compensation which can only be set up at the option of a creditor, when legal compensation cannot take place because some legal requisites in favor of the creditor are lacking.
Creditor may renounce his right to compensation, and he himself may set it up.As opposed to conventional compensation, facultative compensation is unilateral and does not depend upon the agreement of the parties.
VI. Novation
NOVATION: Extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. A juridical act of dual function—it extinguishes an obligation, and at the same time, it creates a new one in lieu of the old. (Asked in ’78, ’88, ’94 and ’01)
Requisites
1. A previous valid obligation
2. Agreement of all the parties to the new obligation
3. Extinguishment of the old obligation 4. Validity of the new obligation Novation is not presumed.
Express novation: Parties must expressly disclose their intent to extinguish the old obligation by creating a new one.
Implied novation: No specific form is required. There must be incompatibility between the old and new obligation or contract.
(Asked in ’79, ’82, ’88, and ’94)
California Bus Line v. State Investment (2003): In the absence of an unequivocal declaration of extinguishment of the pre-existing obligation, only proof of incompatibility between the old and new obligation would warrant a novation by implication.
The restructuring agreement merely provided for a new schedule of payments and authority giving Delta to take over management and operations of CBLI in case it fails to pay installments. There was no change in the object of prior obligations.
Test of Incompatibility
Whether or not the old and new obligation can stand together, each one having an independent existence. No incompatibility exists when they can stand together. Hence, there is no novation.
Incompatibility exists when they cannot stand together. Hence, there is novation.
Effects
In General If Original Obligation is
Novation is void if the original obligation was void, except when annulment may be claimed
only by the
New obligation is void, the old obligation subsists, unless
the parties
intended that the former realations
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debtor, or when ratification validates acts that are voidable.
(Art. 1298) 1. Original obligation is void:
No novation 2. Original obligation voidable:
Effective if contract is ratified before novation
shall be
extinguished in any event. (Art.
1297)
1. New obligation void: No novation 2. New obligation voidable:
Novation is
effective
Accessory obligations are also extinguished, but may subsist only insofar as they may benefit 3rd persons who did not give their consent to the novation OR may not be affected upon agreement between the parties.
Original or new obligation with suspensive or resolutory condition
Art. 1299: If original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated.
Compatible Conditions Incompatible Conditions
Fulfillment of both conditions: new obligation becomes demandable
Fulfillment of condition concerning
the original
obligation: old obligation is revived;
new obligation loses force
Fulfillment of condition concerning the new obligation:
no novation;
requisite of a previous valid and effective obligation lacking
Original obligation is extinguished, while new obligation exists
Demandability shall be subject to fulfillment/
nonfulfillment of the condition affecting it