EXTINGUISHMENT OF OBLIGATION APPLICATION OF PAYMENT

___________________________________ Designation of the debt to which should be

applied a payment made by a debtor who
OBLIGATIONS ARE EXTINGUISHED IN owe several debts to the same creditor.
ANY OF THE FOLLOWING:
1. TENDER OF PAYMENT REQUISITE OF APPLICATION OF
Special Forms of Payment PAYMENT
a. Applications of Payment a. Plurality of debts
b. Payment by Cession b. Debts are of the same kind
c. Dation in Payment c. Debts are owed to the one and same
d. Tender of Payment and creditor and by the same debtor
Consignation d. All obligations must be due
2. LOSS OF THE THING DUE OR e. Payment made is not enough to cover all
IMPOSSIBILITY OF PERFORMANCE debts

3. BY CONDONATION OR REMISSION OF RULES TO DETERMINE WHICH DEBT IS

THE DEBT ONEROUS
I. An interest bearing obligation is more
4. BY THE CONDONATION OR MERGER onerous than a non-interest bearing
OF THE RIGHTS OF CREDITOR AND obligation.
DEBTOR II. An older debt is more onerous than a
recent debt.
5. BY COMPENSATION III. An obligation where the party is bound
as a principal is more onerous than an
6. BY NOVATION obligation is bound as a surety.
IV. An obligation which is secured is more
TENDER OF PAYMENT onerous than an obligation which is
There is payment if the thing or service had unsecured.
been completely delivered or services have V. An obligation with a penal clause is more
been rendered. onerous than an obligation without a penal
clause.
PERFORMANCE
Performance, in law, as defined by PENAL CLAUSE
Britannica, is the act of doing that which is A penal clause is an obligation which is
required by a contract. attached to the principal OBLIGATION . It
requires the payment or performance of
SPECIAL FORMS OF PAYMENT something, or simply, a greater
1. Application of Payment (Art. 1252) responsibility, in case of noncompliance.
2. Payment by Cession (Art. 1255)
3. Dation in payment (Art. 1245) “coercive means to secure from the debtor
4. Tender of payment and consignation compliance of the obligation.”

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“an accessory undertaking to assume TENDER OF PAYMENT
greater liability in case of on-compliance it is the manifestation made by debtor to
with the obligation. creditor of his desire to comply with his
obligation, with offer of immediate
PAYMENT BY CESSION performance.
Payment by Cession is an act whereby a
debtor abandons all his property to his CONSIGNATION
creditors, so that the latter may apply the It is the deposit of the object of obligation in
proceeds (of its sale) to their credits. a competent court in accordance to the
rules prescribed by law, whenever the
REQUISITES OF PAYMENT BY CESSION creditor unjustly refuses payment or
a. Plurality of debts because of some circumstances which
b. Plurality of creditor render direct payment to the creditor
c. Partial insolvency of the debtor impossible or inadvisable
d. Abandonment of all the debtor's
properties for the benefit of the creditors REQUISITE OF CONSIGNATION
e. Acceptance by the creditors 1) there was a debt due;
2) valid prior tender of payment, unless the
DATION IN PAYMENT consignation was made because of some
It refers to the delivery and transmission of legal cause provided in Article 1256;
ownership of a thing by the debtor to the 3) previous notice of the consignation has
creditor as an accepted equivalent of the been given to the persons interested in the
performance of the obligation (dacion en performance of the obligation;
pago). 4) the amount or thing due was placed at
the disposal of the court; and,
DIFFERENCE 5) After the consignation had been made,
the persons interested were notified thereof.
DATION IN PAYMENT
1. In favor of only one creditor EFFECT OF CONSIGNATION
2. Transfer of ownership of thing alienated a. The debtor is released in the same
to creditor. manner as if he had performed the
3. Not necessarily in state of financial obligation at the time of consignation.
difficulty. b. Accrual of interest is suspended from the
4. Assignment of only some specific thing. time of consignation.
c. Deterioration or loss of the object or
PAYMENT BY CESSION amount entrusted happens without the fault
1. There are various creditors of the debtor, must be borne by the creditor
2. Only possession and administration with from the moment of deposit.
authorization to convert property to cash d. Any increase in the value of the object
with which the debts shall be paid. after consignation inures to the benefit of
3. Assignment presupposes insolvency of the creditor.
debtor.
4. Assignment involves all the property of
the debtor.

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II. LOSS OF THE THING DUE OR REQUISITES
IMPOSSIBILITY OF PERFORMANCE 1. Debt must be existing and demandable.
a thing is lost when it perishes, goes out of 2. Renunciation must be gratuitous without
commerce or disappears in such a way that any consideration.
its existence is unknown or it cannot be 3. Debtor must accept the condonation or
recovered. remission.

REQUISITES EFFECTS OF CONDONATION OR

1. The loss is due to fortuitous event; REMISSION OF DEBT
2. The obligation is to deliver a determinate Renunciation of the principal debt shall
thing; extinguish the accessory obligations, but
3. The debtor has not incurred in delay. remission of the latter leaves the principal
obligation in force. (Art. 1273.)
IMPOSSIBILITY OF PERFORMANCE
An impossibility of performance is when the IV. CONFUSION OR MERGER OF RIGHTS
duties and contractual obligations of one or There is CONFUSION OR MERGER when
more parties cannot be fulfilled under there is a meeting in one person of the
normal circumstances. qualities of creditor and debtor with respect
to one and the same obligation.
DOCTRINE OF UNFORSEEN EVENT
When the service has become so difficult as REQUISITES
to be manifestly beyond the contemplation 1. It should take place between principal
of all the parties, the obligor may be debtor and creditor
released in whole or in part (De Leon, 2. It must be complete and definite.
2003).
THE EFFECTS OF CONFUSION AND
REQUISITES FOR THE DOCTRINE TO MERGER OF RIGHTS
APPLY 1. The obligation is extinguished from the
1. Event could not have been foreseen at time the characters of the debtor and
the time of the constitution of the contract. creditor are merged in the same person.
2. Event makes performance extremely 2. In joint obligations, confusion does not
difficult but not impossible. extinguish the obligation except as regards
3. Event not due to any act of the parties. the corresponding share of the creditor or
4. Contract is for future prestation. debtor in whom the two characters concur.
3. Obligation is not extinguished when
III. CONDONATION OR REMISSION OF confusion takes place in the person of
DEBTS subsidiary debtor (e.g. guarantor), but
Condonation or remission of debts is the merger in the person of the principal debtor
gratuitous abandonment by the creditor of shall benefit the former.
his right against the debtor. It is an act of
liberality, by virtue of which, without
receiving any equivalent, creditor renounces
the enforcement of the obligation.

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V. COMPENSATION obligations even when some requisite in Art.
it pertains to the offsetting of two obligations 1279 is lacking (Art. 1282).
which are reciprocally extinguished if they c. Judicial: decreed by court when there is
are of the same value, or extinguished to counterclaim. Effective upon final judgment.
the concurrent amount if of different values. d. Facultative: a facultative compensation
is one which can only be set up at the
REQUISITE FOR COMPENSATION option of a creditor, when legal
1. Each obligor is bound principally, and at compensation cannot take place because
the same time a principal creditor of the some legal requisites in favor of the creditor
other ; are lacking.
2. Both debts must consist in a sum of
money, or if the things due are FUNGIBLE, EFFECT OF COMPENSATION
of the same kind & quality; 1. Effects arise from the moment all the
3. Both debts are due ; requisites concur.
4. Debts are liquidated and demandable. 2. Debtor claiming its benefits must prove
5. There must be no retention or compensation; once proven, effects retroact
controversy over either of the debts, from the moment when the requisites
commenced by 3rd persons and concurred.
communicated in due time to the debtor 3. Both debts are extinguished to the
6. Compensation is not prohibited by law. concurrent amount, even though the
creditors and debtors are not aware of the
COMPENSATION IS PROHIBITED IN THE compensation.
FF: 4. Accessory obligations are also
1. Contracts of depositum extinguished.
2. Contracts of commodatum
3. Future support due by gratuitous title VI. NOVATION
4. Civil liability arising from a penal offense it refers to the extinguishment of an
5. Obligations due to the government obligation by the substitution or change of
6. Damage caused to the partnership by a the obligation by a subsequent one which
partner extinguishes or modifies the first either by
the following manner:
KINDS OF COMPENSATION I. changing the object or principal
conditions, or
1. As to extent II. by substituting the person of the debtor,
a. Total: That is when the debts are of the or
same amount III. by subrogating a third person in the
b. Partial: When the debts are not equal rights of the creditor.

2. As to origin EXPROMISSION
a. Legal: This takes place by operation of it refers to the act by which a creditor
law. accepts a new debtor, who becomes bound
b. Conventional: It is a situation where the instead of the old, the latter being released.
parties agree to compensate their mutual

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DELEGACION 2. Agreement of all the parties to the new
takes place when the creditor accepts a obligation ;
third person to take place of the debtor at 3. Extinguishment of the old obligation ;
the instance of the latter (studymode.com). 4. Validity of the new obligation.
Dito naman it is the debtor who will inform
the creditor about the substitution. If the KINDS OF NOVATION
creditor accepts this then the old debtor will Express novation is where parties must
be released from liability. expressly disclose their intent to extinguish
the old obligation by creating a new one.
SUBROGATION
Subrogation refers to the substitution of one Implied novation there is no specific form
person (subrogee) in the place of the is required. There must be incompatibility
creditor (subroger) with reference to a claim Between the old and new obligation or
or right, giving the former all the rights of the contract.
latter, including the right to employ all
remedies to enforce payment. Incompatibility test
Incompatibility test is concern as to whether
Kinds of subrogation or not the old and new obligation can stand
a. Conventional subrogation: By together, each one having an independent
agreement of all the parties; existence. No incompatibility exists when
Requisites: they can stand together. Hence, there is no
The consent of the 3rd person, and of the novation. Incompatibility exists when they
original parties (Art.1301). cannot stand together. Hence, there is
novation.
b. Legal subrogation:
This takes place by operation of law without EFFECT OF NOVATION
agreement of the parties. A. Total
1. Transfers to the person subrogated the
LEGAL SUBROGATION IS NOT credit with all the rights thereto
PRESUMED EXCEPT IN THE appertaining, either against the debtor or
FOLLOWING: 3rd persons.
1. When creditor pays another creditor who 2. Obligation is not extinguished, even if the
is preferred, even without the debtor’s intention is to pay it.
knowledge. 3. Defenses against the old creditor are
2. When a 3rd person not interested in the retained, unless waived by the debtor
obligation pays with the express or tacit
approval of the debtor B. Partial
3. When, even without the knowledge of the A creditor, to whom partial payment has
debtor, a person interested in the fulfillment been made, may exercise his right for the
of the obligation pays the obligation. remainder, and shall be preferred to the
person subrogated in his place in virtue of
REQUISITES the partial payment. Such creditor remains a
1. A previous valid obligation ; creditor only up to the balance of the unpaid
debt.