Chapter IV – Extinguishment of Obligations

1. What are the modes of extinguishing an obligation? (Art. 1231)

Article 1231 states that obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.

The other causes can be:

(1) annulment
(2) rescission
(3) fulfillment of a resolutory condition
(4) prescription (Art. 1231)

2. What are the elements of a valid payment?

a. Who has the burden of proving that there is a valid payment?
The debtor has the burden of proving that there is valid payment because only when
the debtor introduces evidence that his obligation has been paid or extinguished
does the burden shift to the creditor.

b. To whom payment shall be made? (Art. 1240)

Article 1240 states that payment shall be made to the person in whose favor the
obligation has been constituted (the creditor or oblige), or his successor in interest,
or any person authorized to receive it.

c. What is the effect if the payment was made to an incapacitated person? (Art. 1241,
par. 1)
The payment to an incapacitated person is valid only if the incapacitated person kept
the thing delivered or insofar as it was beneficial to him.

d. What is the effect if the payment was made to a 3rd person? (Art. 1241, par. 2)
The payment to a third person is valid only when insofar as it has redounded to the
benefit of the creditor. Moreover, these benefits of the creditor do not need to be
proved in cases such (1) if after the payment, the third person acquires the creditor’s
rights; (2) if the creditor ratifies or formally consent the payment to the third person;
and (3) if by the creditor’s conduct, the debtor has been led to believe that the third
person had authority to receive payment.

e. How should payment be made? (Art. 1233 in relation to Art. 1248)

The creditor cannot be compelled to accept partial payment. Also, the debtor must
comply with the whole obligation, but he cannot be required to make partial
payments if he does not wish to do so. Partial performance is allowed when there is
an express stipulation when the debt is in part liquidated and in part unliquidated and
when the different prestations in which the obligation consists are subject to different
terms or conditions which affect some of them.
 f. What is the so-called “Application of payment”?

Application of payment is the designation given to the debt being paid by a debtor
who owes more than one obligation of the same kind to the creditor receiving
payment.
The following requisites should be present:
1. there is only one debtor;
2. there are several debts;
3. the debts are of the same kind;
4. there is only the same creditor.

g. What is the payment by Cession, as distinguished from Dation in Payment? (Art.

1255).
Payment by Cession and dation in payment are substitute forms of payment or
performance. Looking closely, payment by Cession requires two or more creditors,
but in dation, there is only one creditor. Also, in Cession, the debtor must be
(partially) insolvent at the time of the assignment, while in dation, it does not
presuppose the debtor's insolvency. In Cession, the assignment must involve all the
debtor's properties; however, in dation, it involves a specific thing. Lastly, in Cession,
the creditors only acquire the right to sell the thing and apply the proceeds to their
credits proportionately. In contrast, in dation, ownership of the thing is transferred to
the creditor.

h. What is the concept of “Tender of payment and Consignation?

The tender of payment is the act, on the part of the debtor, of offering to the creditor
the thing or amount due. It is only a preparatory act to consignation and does not
extinguish the obligation. Whereas, consignation is the act of depositing the thing or
amount due with the proper court when the creditor does not desire or cannot
receive it, after complying with the formalities required by law. It is applicable when
there is an obligation to pay.

3. Explain the concept of the “Loss of the thing due” as a mode of extinguishing an obligation.
a. What are the requisites for this concept to apply?
The requisites for the concept of the “loss of the thing due” to apply are:
(1) the obligation is to deliver a specific or determinate thing
(2) the loss of the thing occurs without the fault of the debtor
(3) the debtor is not guilty of delay

4. Explain the concept of Condonation as a mode of extinguishing an obligation. (Article 1271-

1274).
Condonation is an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of an obligation, which is extinguished in its entirety or
in the part or aspect of the same to which the remission refers.

There are different kinds of condonation:

1. As to form
a. Express – formally made in accordance with the forms of ordinary donations (Art.
1270)
b. Implied – inferred from the acts of the parties:
 i. delivery to the debtor of a private document signed by both parties and
attesting to a credit. (Art. 1271)
ii. whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (Art. 1272)
iii. as to pledge, if the thing pledged, after the delivery to the creditor-pledgee,
is found in the possession of the debtor, or a third person who owns the
thing. (Art. 1274)
2. As to extent
a. Total – whole obligation is extinguished
b. Partial – may be as to the amount, accessory obligation, or a certain amount of
debt (in case of solidarity).
3. As to manner of remission
a. Inter vivos – during the lifetime of the creditor
b. Mortis causa – take effect upon death which must be in done through a will.

5. Explain the concept of Confusion as a mode of extinguishing obligation.

The obligation is extinguished from the time the characters of creditor and debtor are
merged in the same person (Art. 1275). Moreover, joint-solidary obligation is extinguished
by confusion or merger but only up to the extent of the joint share of confused party, while
in mixed solidary obligation, the whole obligation is extinguished.

The following requisites must be present:

1. It must take place between the principal creditor and the principal debtor
2. The very same obligation must be involved, for if the debtor acquires rights from the
creditor, but not the particular obligation in question, there will be no merger.
3. The confusion or merger must be total as regards the entire obligation. However,
partial merger or confusion is not prohibited by law.

6. Explain the concept of Compensation as a mode of extinguishing obligation.

a. What are the requisites for compensation to apply?
The requisites for compensation are:
1. Parties must be mutual principal debtors and creditors in their own right
2. Both debts must be due
3. Both debts must be liquidated and demandable
4. Debts must pertain to sums of money or if consumables, they must be of the
same kind and quality
5. The claim must be clearly demandable, i.e., no controversy as to the claim

b. When is compensation as a mode of extinguishing an obligation, prohibited? (Art.

1287, 1288, and 1794).
Compensation is prohibited when one of the debts arises from depositum,
commodatum, claim for support due by gratuitous title, and one of the debts consist
of civil liability arising from a penal offense.

7. Explain the concept of Novation as a mode of extinguishing an obligation. (Art. 1291)

a. What are the essential requisites of a Novation?
The essential requisites of a novation are:
1. previous valid obligation;
2. capacity and intention of the parties to modify or extinguish the obligation;
 3. the modification or extinguishment of the obligation; and
4. the creation of a new valid obligation.
b. Distinguish Expromission from Delegacion.
Expromission is a passive novation without the debtor's knowledge or against the
will. It is beneficial reimbursement, and the old debtor is no longer liable in case of
insolvency of the new debtor. Delegacion is where the old debtor or substitution
proposes the new debtor with the original debtor's consent. There is full
reimbursement, and in case of insolvency of the new debtor, the original debtor may
still be liable if the insolvency has already existed and is either of public knowledge
or known to the debtor.

Contracts
1. Define contracts. (Art. 1305)
Article 1305 states that a contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service.

2. What are the requirements of a valid contract? (Art. 1306, 1403, Art. 1317, Art. 1318).
The requirements of a valid contract are:
1. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy (Article 1306).
2. When law requires a certain form for its enforceability (Article 1403).
3. No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him (Article 1317).
4. Contracts must concur to the following requisites: (1) Consent of the contracting parties,
(2) object certain which is the subject matter of the contract, and (3) cause of the
obligation which is established (Article 1318).

3. Explain the concept of “Freedom to Stipulate or Autonomy or Liberality” of contracts. (Art.

1306).
As stated in Article 1306, The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. It expresses that the limitations on
contractual stipulations, such contracts must be in accordance with, and not repugnant o,
an applicable statute, hence, the law sets limits. Also, when there is no law existence or
when the law is silent, the will of the parties prevails unless their contract contravenes the
limitation of moral, good customs, public order, or public policy.

4. Explain the concept of “Mutuality” of contracts. (Art. 1308).

Mutuality of contracts is when a contract binds both parties in order that it can be enforced
against either. It is a fundamental rule that no party can renounce or violate the law of the
contract without the consent of the other. Also, the determination of the performance may
be left to the third person, whose decision shall only be binding once it has been made
known to both contracting parties, or the determination shall not be obligatory if it is
inequitable. In such a case, the court shall decide what is equitable.

5. Explain the concept of “Relativity” of contracts. (Art. 1311).

Relativity of contracts is when the contract takes effect or is binding only between the
parties, their assigns and heirs, which are referred to as privies. This concept emphasizes
 that the heirs are liable to the debts of decedent but only up to the extent of the property
they inherited. The general rule is rights and obligations arising from contracts are
transmissible, however, there are such cases where it is not transmissible such as those
which are purely personal, those which are provided by law to be not transmissible, and
those which are stipulated by the part to be not transmissible.

Moreover, if a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a third person.

6. Explain the concept of “Consensuality” of contracts. (Art. 1315).

Consensuality of contracts are contracts perfected by mere consent of the parties regarding
the subject matter and the cause of the contract. Almost all contracts are consensual as to
their perfection; they come into existence upon their perfection by mutual consent, even if
the subject matter or the consideration has not been delivered.

7. Explain the concept of the “Obligatory force” of contracts. (Art. 1315).

The obligatory force of contracts is when the parties agree on a definite subject matter and
valid consideration; they are bound to fulfill what has been expressly stipulated and to all
consequences which, according to their nature, may be in keeping with good faith, usage,
and law.

8. What are the essential requisites of a Contract?

a. What are the requisites of a valid meeting of minds? (Also read Art. 1323)
Article 1318 states there is no contract unless the following requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.

Article 1323 also states that an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed. It
emphasizes that the time of acceptance is communicated, both parties, offerer and
offeree, must be living and capacitated.

9. What are the vices of consent? (Art. 1330). VIMFU

The vices of consent are:
1. error or mistake (Art. 1331)
i. it pertains to the object
ii. it pertains to the principal conditions
iii. identity or qualifications of the parties
iv. legal effect that frustrates the agreement of the parties and the same is
mutual
2. violence or force (Art. 1335)
i. when serious or irresistible force is employed in order to gain consent.
3. intimidation or threat or duress
i. when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent a
ii. nd grave evil upon his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his consent.
4. undue influence (Art. 1337)
 i. when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice.
5. fraud or deceit (Art. 1338)
i. when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.

10. Distinguish the following defective contracts: Rescissible, Voidable, Unenforceable, VOID
a. As to the origin of the defect.
Rescissible contracts are valid because all the essential requisites of a contract
exist. However, the contract may be rescinded because of economic injury or
damage to one of the parties or third persons, such as a creditor.

Voidable contracts are valid until annulled unless there has been a ratified. The vice
of consent causes the defect.

Unenforceable contracts are defective contracts that are valid, although only binding
once ratified. The contract occupies an intermediate ground between a voidable and
a void contract.

Void or inexistent contracts are null and void. It is a contract that is invalid and,
therefore, not binding. It is considered an absolute nullity and produces no effect as if
it had never been executed or entered into and cannot be ratified.

b. As to the legal effect.

A rescissible contract is where one of the parties has the right to ask for the
contract's annulment due to a flaw or vice. The contract is deemed voidable from its
inception if the harmed party successfully rescinds it. The parties are returned to
their pre-contractual positions, and the contract is legally set aside as if it never
existed.

Voidable contracts are where the legal effect of voidability is that the contract may be
set aside by the party with the power of avoidance, rendering it void and releasing
the parties from their obligations.

Unenforceable contracts are where the parties involved can nonetheless enforce an
unenforceable contract. However, a court of law cannot enforce the contract
because of specific legal criteria or technicalities. The defect is the failure to follow
specific procedures, like the absence of a legally needed written agreement. The
legal result is that although the contract cannot be enforced through legal methods, it
is nevertheless legitimate and binding between the parties.

Void or inexistent contracts are where the defect in a void contract is so severe that it
goes against the law or public policy. The legal effect Is that the contract Is null and
void, and its terms do not bind the parties. It cannot be enforced or upheld by any
party.

c. As to whether it is curable by prescription.

In rescissible contracts is when the right to rescind a rescissible contract due to a
defect is subject to a specific prescription period. Suppose the prescribed period
elapses without the injured party exercising their right. In that case, the contract
 becomes unresponsible, meaning the defect can be cured by prescription if legal
action is not taken within the specified timeframe. Failing to act within the prescribed
period can result in losing the right to rescind the contract.

Voidable contracts A prescription period must pass before exercising the right to
withdraw a rescissible contract because of the flaw. The contract is no longer
revocable once the allotted time has passed without the injured party exercising their
entitlement. In other words, if the injured party does not file a lawsuit within the
allotted period, the defect in a rescissible contract may be rectified by prescription.

Prescription cannot fix an unenforceable contract since the flaw is in the legal
requirements rather than the parties' agreement or behavior. Because specific
requirements still need to be met, the contract is nonetheless enforceable between
the parties but cannot be done so legally.

A void contract cannot be remedied by prescription because it is inherently invalid

and has no legal force. No amount of time can validate or enforce a void contract
since the flaw is so severe that it renders it void from the start.

d. As to remedy.
Rescission is the remedy for a revocable contract. The injured party has the right to
take legal action to demand that the contract be void and that their pre-contractual
position be restored. Rescinding a contract is to reverse its consequences and
compensate for any losses incurred.

Voidable contracts are that the party's decision with the power of avoidance will
determine the remedy for a voidable contract. The remedy is to carry out the
obligations under the contract if they decide to uphold it. They can seek the
contract's avoidance and release from responsibilities if they exercise their right to
reject it.

An unenforceable contract only has a few available remedies. The agreement is still
enforceable between the parties but cannot be done so in a court of law. Any
disagreements or problems resulting from the contract may require the parties to
discuss and find other solutions outside of the legal system.

A void contract has no remedy because it is inherently void and has no force of law.
Any duties or acts based on the void contract are considered void, and its provisions
do not obligate the parties.

e. As to whether it is susceptible to ratification.

A rescissible contract may be subject to ratification. Even though the contract was
initially revocable, the party that experienced harm or loss as a result of the flaw in it
has the opportunity to confirm or ratify it. The agreement is ratified, giving it legal
force and binding the parties. However, only the party that was hurt or damaged can
ratify; the party who created the flaw cannot.

A voidable contract may also be ratified. In a voidable contract, the party with the
avoidance power can ratify the agreement, confirming its validity and committing to
the terms of the agreement. The party having the power of avoidance may ratify a
voidable contract.
 Ratification cannot be granted to an unenforceable contract. An unenforceable
contract has a flaw that stems from a failure to follow particular legal procedures or
standards. Ratification does not fix the problem or render the contract binding
because the problem is with the specific legal conditions that must be met, not with
the parties' assent.

A contract that is null and void cannot be ratified. A void contract is inherently
unenforceable and has no force or effect. Because the flaw is so severe that it
violates the rule of law or public policy, it cannot be ratified or approved.

f. As to susceptibility of prescription.

A rescissible contract may be subject to prescription, and the right to rescind may
expire over time if not exercised within the prescribed period.

In voidable contracts, prescription is a legal doctrine that applies to contracts that are
voidable but only if the right to do so is exercised within a certain amount of time.

In unenforceable contracts where a contract cannot be executed because of legal

restrictions rather than the passage of time, prescription may not be applicable.

Prescription usually does not apply to void contracts because of their inherent
invalidity.