Novation

Novation takes place when there is an irreconcilable incompatibility between the old and the new obligations.

There are three ways to constitute novation, namely:

(1) By changing the object or principal conditions;

(2) By substituting the person of the debtor; or

(3) By subrogating a third person in the rights of the creditor.

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Condonation or Remission of Debt

Condonation or remission is an act of liberality by the creditor who, without receiving any equivalent, renounces the enforcement of the debtor’s obligation resulting in its partial or total extinguishment. As condonation is essentially gratuitous, it is subject to the rules on inofficious donations. Thus, remission has to be accepted by the obligor.

Remission may be either be express or implied. For express condonation, it must be done in accordance with the forms of donation. Unless proved to the contrary, there is implied renunciation when the creditor voluntarily delivers to the debtor the private document evidencing the credit.

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Loss of the Thing Due

The extinguishment of an obligation to deliver a thing depends on whether the object is generic of specific.

For a generic thing, the debtor is not released from its obligation if the object is lost or destroyed. As the object is generic, it may easily be replaced by another of the same type or quality. Continue reading here.

Payment or Performance

Payment refers to either the delivery of money and/or the performance, in any other manner, of an obligation. The currency stipulated by the parties is the basis of the payment for debts in money. If it is not possible to do so, then the debt is to be paid in the currency which is legal tender in the Philippines. For obligations to give, a payment is only valid if the person making payment has free disposal of the thing due and capacity to alienate it.

As a general rule for obligations to give, a debt is only considered paid if the thing or service in which the obligation consists has been completely delivered or rendered. However, there is no valid payment to the creditor by the debtor who had been judicially ordered to retain the debt. By way of exception to the general rule, the debtor who has substantially performed in good faith its obligations has the right to recover (or demand performance against the creditor) as if there had been a strict and complete fulfillment less damages that the creditor may have been suffered. This is the rule on substantial compliance.

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Obligations with a Penal Clause

If there is no stipulation to the contrary, the penalty in obligations that carry a penal clause substitutes the indemnity for damages, as well the payment of interests in case of non-compliance. This penalty is referred to as liquidated damages. To be entitled to the penalty, the creditor is not required to show proof of actual damages.

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