Libro Quinto Título IV. Extinción de obligaciones

Compensation takes place when two persons combine the status of debtors and creditors reciprocally and in their own right.

Compensation may not take place to the prejudice of a third party and shall only proceed when the debts consist of money or of fungible things of the same species and quality, and are equally liquid and enforceable.

For set-off to produce its effects, the interested party must invoke it and, once invoked, it extinguishes both debts from the date of their coexistence and up to the amount of the lesser.

The limitation period does not prevent compensation when it had not been completed at the time when the obligations were compensable.

Compensation does not apply:

1°.In the claim regarding restitution of dispossession;

2°.In the claim regarding restitution of a deposit; and

3°.In what is owed for current maintenance.

The broker or any other intermediary person may not set off the sums they receive to purchase specified objects, nor the price delivered to them for the things they sell, against the amounts owed to them by the principals.

The guarantor, or one who has given his property as security for the debt of another, may oppose compensation for what the creditor owes to him or to the debtor.

When debts are to be paid in different places, transportation expenses shall be taken into account for set-off.

When there are several compensable debts owed by the same person, the rules established for the imputation of payments shall be observed for compensation.

Whoever pays a compensable debt knowing that it is compensable, without invoking compensation, when claiming his credit that could have been compensated, may not take advantage, to the prejudice of a third party, of the guarantees that said credit may have had at the time of making the payment.

There is novation when debtor and creditor substantially alter the obligation, substituting it with another.

Novation is not presumed; it is necessary that the intent to effect it clearly appear from the new agreement, or that the old and the new obligation be wholly incompatible.

Novation extinguishes the guarantees and accessory obligations, unless the creditor and debtor expressly agree on the reservation; but such reservation shall not be valid when the guarantee was provided by a third party who does not expressly accept the new obligation.

Novation does not alter the order and preference of the guarantees constituted by the debtor when it concerns property owned by him or property of third parties who have given their consent for the new obligation.

The extension of the time limit of a debt does not constitute novation, but terminates the liability of the sureties and extinguishes the guarantees constituted over property that does not belong to the debtor, unless the sureties or the owners of the things given in guarantee expressly consent to the extension.

The mere reduction of the time limit does not constitute novation, but collection may not be made from the sureties who have not expressly accepted the reduction until the time limit originally stipulated expires.

When the new obligation consists simply of adding or removing a species, genus or quantity to the first one, the subsidiary or solidary co-debtors may not be obligated for the excess.

If the new obligation is limited to specifying an amount as compensation in case of non-performance and both are enforceable at the same time, the guarantees constituted shall subsist only to the extent of the principal debt without the compensation; and if only the latter were enforceable, the guarantees shall be extinguished and the solidary or subsidiary co-debtors who have not accepted the new agreement shall be exonerated.

The reduction of the interest rate in debts consisting of money and the reduction of rents do not constitute novation.

The mere change of the place for payment leaves subsisting the guarantees of the obligation constituted by third parties, but without any additional burden for them.

Novation produces no effects if the former obligation was void or was extinguished. The merely voidable obligation is confirmed by novation.

If the new obligation alone is void, the former shall revive with all its conditions, modalities, privileges and guarantees.

The remission of the debt made by the creditor and accepted by the debtor extinguishes the obligation.

The forgiveness of the debt granted to the debtor, even if not accepted by him, extinguishes the obligation of the guarantors and any other guarantees.

Remission made to one of the merely joint debtors only extinguishes the obligation of the debtor who was forgiven.

The remission made to one of the simple guarantors does not extinguish the obligation of the debtor nor that of the other guarantors.

If the debtor becomes insolvent, the creditor shall collect its claim from the other guarantors, less the share corresponding to the guarantor who was released.

The remission of the accessory obligation of pledge is presumed when the pledged thing, after delivery to the creditor, is found in the debtor's possession, save evidence to the contrary.

The concurrence in the same person of the capacities of creditor and debtor extinguishes the obligation.

If for any cause the act that gave rise to the confusion is annulled or rescinded, the original situation is restored with all its privileges, guarantees, and accessories, without prejudice to a third party in good faith.

The confusion occurring in the principal debtor benefits his sureties.

The merger occurring in the person of the guarantor does not extinguish the principal obligation nor that of the other guarantors.

If the status of creditor concurs in one of several simply joint debtors, the others are not released except in the portion corresponding to their co-debtor.

The credits and debts of the heir who has not been instituted under universal title do not merge with the hereditary debts and credits.

The extinctive, negative or liberative limitation period, exercised as an action or as an exception by the debtor, extinguishes the obligation.

The limitation period of the principal obligation produces the limitation period of the accessory obligation.

Persons prevented from administering their property may claim against their legal representatives whose intent or negligence has been the cause of the limitation period.

Those who have capacity to incur obligations may renounce prescription already acquired, but not the right to prescription in the future.

The limitation period is deemed waived if the debtor acknowledges owing without pleading the limitation period or if the debtor pays all or part of the debt.

The term for the limitation period does not run:

1°.Against minors and incapacitated persons, during the time they are without a constituted legal representative;

2°.Between parents and children, during parental authority;

3°.Between minors and incapacitated persons and their guardians, while the guardianship lasts;

4°.Between co-owners, while the indivision lasts; and

5°.Between spouses, during marriage; and between a man and a woman, during the de facto union.

The limitation period is interrupted:

1.By judicial claim duly notified or by any precautionary measure executed, except if the creditor discontinues the action brought, or the defendant is absolved of the claim, or the judicial act is declared void.

2.If the person in whose favor the limitation period runs expressly acknowledges, orally or in writing, or tacitly by undoubted facts, the right of the person against whom the limitation period runs; and

3.By payment of interest or amortizations by the debtor, as well as by partial performance of the obligation on his part.

The effect of interruption is to render ineffective for the limitation period all time elapsed before it.

The extinctive limitation period occurs in all cases not mentioned in special provisions, by the lapse of five years, counted from when the obligation could be demanded; and if it consists of not doing, from the act contrary to the obligation.

In obligations with a time limit and in conditions, the term for the limitation period is counted from when the time limit is fulfilled or the condition is verified.

The limitation period for the warranty action by reason of warranty is counted from the day on which the eviction took place.

In obligations with interest, the limitation period of the principal, once the time limit has expired, is counted from the date of the last payment of interest.

The limitation period for the obligation to render accounts begins to run from the day on which the obligor ends his administration; and that of the action to collect the balance of those accounts, from the day on which the account is approved by the interested parties or by final judgment.

Civil liability arising from a crime or misdemeanor, and that arising from damage or losses caused to persons, prescribes in one year.

The limitation period runs from the day on which a final judgment of conviction is rendered, or from that on which the damage was caused.

Prescribe in two years:

1°.Fees, salaries, wages, daily wages and other remuneration for the provision of any service;

2°.The action of any merchant to collect the price of objects sold;

3°.The action of owners of hotels and all kinds of lodging houses to collect the amount of board charges and that of innkeepers and other persons who supply food, to collect the price thereof; and,

4°.Pensions, rents, rentals and any other periodic payments not collected when due, whether collection is made by virtue of a real action or a personal action.

In these cases the limitation period runs from the day on which the creditor may demand payment.

The obligation to render accounts incumbent upon all those who administer the property of others, and the action to collect the balance thereof, prescribe after a term of three years.

The provisions of the present chapter shall be understood without prejudice to what is established in this Code or in special laws with respect to other cases of limitation period.