NOTES: PAYMENT OR PERFORMANCE 1. 2. 3.

Payment may consist of not only in the delivery of money but also the giving of a thing. Partial or irregular payment will not extinguish the obligation. There must be substantial compliance and obligor must be in good faith. Ex. A to deliver 50 bags of cement. Despite effort, A only deliver 40 bags because of shortage. A can recover if he attempted in food faith to comply w/ his obligation. Obligee know that the performance is incomplete or irregular but he accepts the performance w/o expressing any protest or objection. Ex. A to paint the house of B with Boysen as stipulated. If B accepted the performance of A knowing the paint used is Coat Saver, and w/o expressing any protest or objection, the obligation is fully complied. Creditor must accept payment or performance from (1) Dr; (2) any person who has interest in the rd obligation (like guarantor); (3) 3 person who has no interest in the obli when there is stipulation that he rd can make payment. NOTE: Cr may refuse payment of 3 person. rd Effect of payment by 3 person. (1) if made w/o knowledge of Dr recovery only to the amount of debt at the time of payment; (2) if made w/ knowledge of Dr right of reimbursement and subrogation (to recover what he has paid and to acquire all rights of the creditor). In subrogation, the person who pays for the Dr is put into the shoes of the creditor. Ex. A borrowed 500 from B. C is the guarantor. W/o knowledge of A, D paid B. In this case, D can claim from A whole 500 bcoz A benefited from it. If A cannot pay D, D cannot proceed against C bcoz having paid w/o consent of A, D is not entitled to subrogation. But if payment was with consent of A, D not only entitled to full reimbursement but also to subrogation. Suppose the obli of A is secure by a mortgage of a land of A. Payment of D w/o knowledge of A cannot give her the right to subrogation. D can recover only insofar as the payment has been beneficial to A. Payment shall be made to: (1) Cr or obligee; (2) successor in interest (heirs or assignee) or (3) any person authorized to receive it. rd Payment made to a 3 person shall be valid insofar as it has redounded to the benefit of the Cr. Benefit to rd the CR need not be proved in the ff: (1) if after payment, 3 person acquires Crs rights; (2) if the Cr rd rd ratifies the payment to the 3 person; (3) if by the Crs conduct, the Dr has be led to believe that the 3 person had authority to receive the payment. Payment made in good faith to any person in possession of the credit shall release the debtor. The Dr of a thing cannot compel the Cr to receive a different one, although the latter may be of the same value as, or more valuable than that w/c is due. Ex. A owes B 500. To fulfill obli, A w/ consent of B, delivers a watch. If the watch is worth less than 500, the conveyance extinguish the obli to the extent only of the value agreed upon unless the parties by their agreement have considered the watch was as full payment, the obli is extinguished. When the obli consists in the delivery of an indeterminate or generic thing, who quality and circumstances have not been stated, the Cr cannot demand a thing of superior quality. Neither can the Dr deliver a thing of inferior quality. The purpose of the obli shall be taken into consideration. Ex. A to deliver to B a horse. B cannot compel A to deliver a racing horse. Neither can A require B to accept an old sickly horse. If B owns a stable of race horses and horse-racing is his main diversion in life, w/c is known to A, and the price agreed upon is the reasonable price of a race horse, then A must deliver a race horse. Unless there is an express stipulation to that effect, the Cr cannot be compelled partially to receive the prestations in w/c the obli consists. Neither may the Dr be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the Cr may demand and the Dr may effect the payment of the former w/o waiting for the liquidation of the latter. Delivery of check not payment; when encashed there is valid payment; check stale (fault of Cr) obli extinguished. NOTE: All domestic obligation shall be paid in legal tender in the Phl. Ex. Stipulated dollar ang payment. Stipulation VOID, obligation STANDS. In case of extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless thre is an agreement to the contrary.

4.

5.

6.

7.

8. 9.

10. 11.

12.

13.

14.

15.

16. Payment shall be made in the place designated in the obli. There being no express stipulation and the undertaking is to deliver a determinate thing, payment shall be made wherever the thin might be at the moment of the obli. In any other case, the place of payment shall be the domicile of the Dr. If Dr changes domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by them. 17. Application of payments. REQUISITES: (1) there must be one Dr and Cr; (2) there must be 2 or more debts; (3) the debts must be of the same kind; (4) All debts must be due; (5) payment must not be sufficient to cover all the debts. GEN. RULE: The Dr has the right to determine w/c to pay or the right of application of payment. If Dr does not apply payment, the Cr may make the designation by specifying in the receipt which debot is paid. 18. When the payment cannot be applied in accordance w/ the preceding rules, the debt w/c is most onerous (BURDENSOME) to the Dr, 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. 19. PAYMENT BY CESSATION the assignment or abandonment of all the properties of the Dr for the benefit of his Crs in order that the latter may sell the same and apply the proceeds to the satisfaction of their credits. NOTE: once insolvent obli extinguished. Payment by cessation extrajudicial. Partial extinguishment apply proceeds proportionately. If there is an agreement obli extinguished. 20. CONSIGNATION the act of depositing the thing or amount due w/ the PROPER COURT when the Cr does not desire or cannot receive it, after complying w/ the formalities required by law. REQUISITES: a. Debt is due b. Tender of payment by the Dr and refusal w/o justifiable reason by the Cr to accept it c. Previous notice of consignation to persons interested in the fulfillment of the obli d. Consignation of the thin or sum due e. Subsequent notice of consignation made to the interested parties 21. Prior notice to persons interested is required. The consignation must be w/ proper judicial authority. Notice must be given to interested parties of the consignation made. Deposit thing to the court. 22. Expense of consignation shall be charged against the creditor. 23. Once consignation has been duly made, the Dr may ask the judge to order the cancellation of the obli.

LOSS OF THE THING DUE 1. Cases when the loss of thing will not extinguish the liability a. The law/stipulation so provides b. The nature of the obli requires the assumption of risk and c. The obli to deliver a specific thing arises from a crime REQUISITES when the loss of thing WILL EXTINGUISH the obli a. The obli is to deliver a specific thing b. The loss of the thing occurs w/o fault of the Dr c. The Dr is not guilty of delay The court shall determine whether the partial loss of the object of the obligation is so important as to extinguish the obligation When the thing is lost in the possession of the Dr, is shall be presumed that the loss was due to his fault, unless there is proof to the contrary. This provision does not apply in case of natural calamities. Ex. A borrowed the car of B. On the due date of the obli, A told B that the car was stolen w/o his fault. This is not enough to extinguish As obli. It is presumed that the loss was due to his fault hence, he is liable unless he proves the contrary. If the obli is impossible from the very beginning, the obli is VOID. Impossibility of performance releases the obligor. When the debt of a thing certain and determinate proceeds from a criminal offense, the Dr shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused w/o justification to accept it. Ex. A stole the watch of B. Here, A has obli to return the watch to B. the obli of A arises from an act

2.

3. 4.

5. 6. 7.

8.

punishable by law. Even if the watch was destroyed w/o the fault of A, he shall be liable for the payment of its price. The obligation having been extinguished by the loss of the thing, the Cr shall have all the rights of action rd rd w/c the Dr may have against 3 persons by reason of the loss. (Cr has the right to proceed against 3 person).

CONDONATION OR REMISSION OF THE DEBT

1. 2.

3.

4.

5.

CONDONATION is the gratuitous abandonment by the Cr of his right against the Dr. it is thus a form of donation. REQUISITES: a. It must be GRATUITOUS b. It must be ACCEPTED BY THE OBLIGOR c. Parties must have the CAPACITY d. It must be INOFFICIOUS e. If made expressly, it must COMPLY WITH THE FORMS OF DONATION The delivery of a private document evidencing accredit, made voluntarily by the Cr to the Dr, implies the renunciation of the action w/c the former had against the latter. If in order to nullify this waiver claiming to be inofficious, the Dr must prove that the delivery of the document was made in virtue of payment of the debt. Whenever the private document in w/c the debt appears is found in the possession of the Dr, it shall be presumed that the Cr delivered it voluntarily, unless the contrary is proved. Ex. A owes B 500 evidenced by the promissory note. The note, signed by A, is given to B. if the promissory note is voluntarily delivered to A, the presumption is that the debt must have been paid by A. If it is known that A has not yet paid B, it must be presumed that the obligation has been REMITTED. Suppose it is not known how A came into possession of the note. The presumption is that it was VOLUNTARILY DELIVERED by B, unless B proves the contrary. The renunciation (abandonment) of the principal debt shall extinguish the accessory obli; but the waiver of the latter shall leave the former in force. Ex. A owes B 1000 w/ C as guarantor. The principal debt here is the 10000, while the accessory obligation is the guaranty of C. the remission of the debt of A by B shall extinguish the guaranty of C. but if only the guaranty of C is condoned, the obli of A shall remain in force.

CONFUSION OR MERGER OF RIGHTS

1. 2.

3.

4.

The obli is extinguished from the time the characters of Cr and Dr are merged in the same person. CONFUSION OR MERGER meeting in one person of the qualities of Cr and Dr w/ respect to the same obli. Ex. A owes B 500 for which A executed a promissory note in favor of B. B indorse the note to C who, in turn indorsed it to D. now D bought good from the store of A, instead of paying cash, D indorsed the promissory note to A. Here A owes himself. Consequently, his obligation is extinguished by MERGER. merger w/c takes place in the person of the principal Dr or Cr benefits the guarantors. Confusion w/c takes place in the person of any of the latter does not extinguish the obligation. Ex. A owes B 500, guaranteed by C. B assigns his credit to X. X assigns the credit to A. As obligation is extinguished and C is relased from his obligation. If X assigns the credit to C, the guarantor, A still have to pay C, however, the contract of guaranty is extinguished, but not As obligation to pay 500. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. Ex. A and B owe C 100. If C assigns the entire credit to A,

As share is extinguished, but Bs share remains. In other words, B would still owe A the sum of 50. In a joint obligation, the debts are distinct and separate from each other.

COMPENSATION

1.

Compensation is the extinguishment to the concurrent amount of the debts of two persons who, in their own right, are debtors and creditors of each other. In compensation, 2 persons are involved, each of whom is a debtor and a creditor of the other; there are 2 obligations, there is indirect payment. 2. In order that compensation may be proper, it is necessary: a. Each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other. Ex. G as guardian for W, is a creditor of D. D in turn is a creditor of G who owes him a personal debt. There can be NO compensation because it is W who is the real creditor, not G. b. 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 stated. Ex. A owes B a fountain pen. B owes A also a fountain pen. There can be compensation here because the objects are fungible. c. That the two debts are due. Ex. A owes B 100 payable Apr. 1, 2013. B owes A 100 payable Jun 1, 2013. Can there be legal compensation on Apr 1? NO. Ror one of the debts is not yet due. However, there can be voluntary compensation upon agreement. d. That they be liquidated and demandable rd e. That over neither of them there be any retention or controversy, commenced by 3 persons and communicated in due time to the debtor. Ex. A owes B 100 and B owes A 100, but As credit has been garnished by C who claims to be an unpaid credit of A. B has been duly notified of the controversy. There can be NO compensation here. Possible compensation is suspended. If C win, there can be no compensation, if C loses, the controversy is resolved, and compensation can take place. 3. The guarantor may set up compensation as regards what the creditor may owe the principal debtor. Ex. A owes B 500. C is the guarantor. B owes A 100. When B sues A and A cannot pay, for how much will C be liable? 400 because he can set up the 100 credit of A as the basis for partial compensation. 4. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. 5. The parties may agree upon the compensation of debts w/c are not yet due. 6. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by provinghis right to said damages and the amount thereof. Ex. A owes B 1000. When A demanded payment, B failed to pay. In anger, A damaged the property of B to the extent of 800. B can set off the obligation of A to pay him damages in the amount of 800 against his debt of 1000. 7. Assignment may be made w/ the consent of the debtor. Ex. A owes B 100. B in turn owes A 20. Both debts are due, both debts are extinguished up to the amount of 20. Later, w/ the consent of A, B assigned 100 credit to C. C can collect the whole 100 from A. A cannot set up the defense of compensation of 20 in view of his consent to the assignment. If there is reservation, A will only give 80. 8. Assignment made WITH KNOWLEDGE but W/O THE CONSENT of the debtor. Ex. C can only collect 80. There is already compensation of 20. 9. Assignment made W/O CONSENT of the debtor. Debtor can set up compensation as a defense for all debts maturing PRIOR to his knowledge of the assignment. Ex. A learned of the assignment on Aug 1. On Aug 24, 10 debt of B in favor of A matured. C asked A to pay his debt. 80 bcoz debts w/c had matures and were therefore already compensable PRIOR to his knowledge of the assignment. But A cannot set up the last debt of 10 for partial compensation bcoz this matured only after he knew of the assignment. 10. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. Ex. A obliged himself to deliver to B 50 sacks of rice in Davao. B is also bound to deliver to A 10 sacks of rice of the same kind to Bulacan. The expenses for transportation of the rice to Davao is 4000 and to

Bulacan 1000. If A claims compensation, he must indemnify B the amount of 3000 for the expenses of transportation of the rice to Davao. 11. Instances when legal compensation isnot allowed by law: a. One of the debts arises from a depositum (a person receives a thing from another w/ the obli of safely keeping it and of returning the same) ex. Deposit of a thing for guardianship b. One of the debts arises from commodatum (a gratuitous contract whereby one of the parties deliver to another something not consumable so that the latter may use the same for a certain time and return it) ex. Borrowing of a thing c. One of the debts arises from a claim for support due by a gratuitous title. Ex. Fathers financial support d. One of the debts consists in civil liability arising from a penal offense 12. If a person should have against him several debts w/c are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. Ex. Dr shall specify to Cr which of the obligations should be compensated. If Dr fails to inform Cr, Cr may apply the compensation to the most onerous obligation. 13. Consent of parties are not required in legal compensation

NOVATION

1.

NOVATION extinction or modification of obligation through the creation of a new one which substitutes it. 2. Obligation may be modified by: a. Changing their object or principal condition; b. Substituting the person of the debtor c. Subrogating a person in the rights of the creditor 3. REQUISITES: a. A previous valid obligation b. Capacity and intention of the parties to modify or extinguish the obligation c. Modification or extinguishment of the obligation d. Creation of a new valid obligation 4. Novation which consists in substituting a new debtor in the place of the original one, may be made EVEN WITHOUT THE KNOWLEDGE OF THE LATTER, but NOT WITHOUT THE CONSENT OF THE CREDITOR. 5. If the substitution is WITHOUT THE KNOWLEDGE of the debtor, the new debtors insolvency or nonfulfillment of the obligations shall NOT GIVE RISE TO ANY LIABILITY on the part of the original debtor. 6. The insolvency of the new debtor, who has been proposed by the 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 he delegated his debt. 7. When the principal obligation is extinguished in consequence of a novation, accessory obligations may rd subsist only insofar as they may benefit 3 person who did not give consent. 8. The new obligation must be valid. 9. 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. Ex. A agreed to deliver prohibited drugs to B. later on, it was agreed that A would pay B 100 instead of delivering the drugs. Novation is void bcoz the original obligation is void. 10. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. 11. Subrogation is the substitution of one person (subrogee) in the place of a creditor (subroger) with reference to a lawful claim or right, giving the former all rights of the latter. (requires the consent of the original parties) 12. It is presumed that there is legal subrogation: a. When a creditor pays another creditor who is preferred, even w/o the debtors knowledge

When a 3 person, not interested in the obligation, pays with the express or tacit approval of the debtor c. When even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, w/o prejudice to the effects of confusion as to the latters share 13. Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either rd against the debtor or against 3 persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. Ex. D owes C 100. G is the guarantor. A stranger S paid C 100 with the consent of D and C. S is now subrogated in the place of C. If D cannot pay 100, S can proceed against the guarantor, G. 14. A creditor to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. Ex. A owes B 100. With consent of both, C pays B 50. Now B and C are the creditors of A to the amount of 250. Suppose A has only 250 who should be preferred? B, the original creditor, should be preferred inasmuch as he is granted by the law, preferential right to recover the remainder, over the person subrogated in his place by virtue of the partial payment of the same credit.

b.

rd