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CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
STUDY GUIDE :
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
4. Who are the persons from whom the creditor is bound to accept payment or
performance? (Art. 1236, par. 1)
5. Suppose a third person pays for the debtor, how much can he recover from the
debtor by way of reimbursement?
It depends.
(a) If made without the consent or against the will of the debtor, the third person
can recover only insofar as the debtor has been benefited by the payment. In other
words, the third person-payor is entitled only to REIMBURSEMENT. (Art. 1236, par. 2)
(b) If made with the consent of the debtor, the third person can recover whatever
amount he has paid. In addition, the third person will be SUBROGATED to the rights of
the creditor (e.g., rights arising from a mortgage, guaranty or penalty). Here, the third
person-payor is entitled to REIMBURSEMENT + SUBROGATION. (Art. 1237)
(b.1.) SUBROGATION means the act of putting a person into the shoes of the
creditor; hence, permitting that same person to exercise all the rights and actions that
could have been exercised by the creditor.
6. Who are the persons to whom the debtor is bound to make payment? (Art. 1240)
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
In two cases:
(a) The payment will be valid only in so far as it has redounded to the benefit of the
creditor (e.g., the payment, or a part thereof, is delivered by the third person to the
creditor). (Art. 1241)
(b) The payment is made in good faith to a person in possession of the credit.
(Art. 1242)
(a) In a specific real obligation and personal obligation. – The very thing or
service due. The creditor cannot be compelled to receive a prestation different from that
which is due. (Art. 1244)
(b) In a generic real obligation. – The thing must be of the quantity and quality
specified. If no quality is specified, the creditor may not demand a thing of superior
quality, and the debtor may not deliver a thing of inferior quality. This is “the rule of the
medium quality.” (Art. 1246)
As a general rule, the creditor cannot be compelled to accept, and the debtor
cannot be required to make, partial payment or performance. (Art. 1248, par. 1) The
exceptions to this rule are :
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
(b) When the debt is in part liquidated and in part unliquidated. (Art. 1248, par. 2)
(c) When the different prestations in which the obligation consists are subject to
different periods or conditions which affect some of them. (e.g., Where D owes C
P10,000, and P6,000 of the debt is due today and P4,000 is due 30 days after; or in case
the payment of P4,000 is subject to the fulfilment of a suspensive condition.)
10. In what currency shall payment of debt in money be made? (Art. 1249, par. 1)
11. Commercial documents are NOT legal tender. The creditor, therefore, cannot be
compelled to accept them as payment for a debt. Supposing, however, the creditor
decides to accept a commercial document (such as a check) in payment of a debt,
will the debt be extinguished? (Art. 1249, par. 2)
Acceptance of the check will be equivalent to payment only (i.e., the debt will
be extinguished only) when :
(b) The check has lost its value because of the fault of the creditor.
12. Give the RULES regarding the place where payment shall be made.
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
13. What are the four (4) special modes or forms of payment under the Civil Code?
In this special mode of payment, the debtor indicates with particularity the
specific debt to which the debtor’s payment should be applied, there being several debts
owing to the creditor, and the debtor’s payment being insufficient to cover all the debts.
Application of payment can, therefore, be made use of only when the following
requisites concur :
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
16. Assuming all the requisites above are present, what are the rules to be observed in
application of payment?
(a) Under the first paragraph of Art. 1252, it is the debtor who is given the
preferential right to choose which among the debts due he is paying.
(b) If the debtor does not choose, the creditor may make the designation by
specifying in the receipt which debt is being paid. (Art. 1252, par. 2)
(c) If neither the debtor nor the creditor has made the application, or if the
application is not valid, then application is made as follows :
(c.1.) Apply the payment to the most onerous debt among those due. (Art. 1254, par. 1)
(c.2.) If the debts are of the same nature and burden, apply the payment to all the debts
proportionately. (Art. 1254, par. 2)
17. Art. 1253 mandates that, when interest is due on the debt, application of payment
should be made first to the interest before the principal. Hence, the debtor cannot
insist that his payment be credited to the principal first, instead of the interest.
On July 15, 2013, C went to the house of D to demand the fulfillment of D’s
obligation. While D was willing to make payment to C, all that D had was P100,000.
Applying the rules on application of payment :
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
(a) D will pay C the P100,000, and inform her that the said payment will specifically
be applied to the P100,000 debt due on March 15, 2013. D cannot insist that C accept
the payment for the P200,000 debt due on June 30 because it would amount only to a
partial payment. Under Art. 1248, C cannot be compelled to receive partial payments.
Neither can D apply the P100,000 payment to the motorbike, though of the same value,
because it is not of the same kind (Art. 1252).
(b) If D does not indicate to which of the debts he will apply his payment of
P100,000, C (after receiving payment) may indicate in the receipt given to D that: “I
hereby acknowledge receipt from D of the amount of P100,000, which is hereby applied to
the P100,000 debt of D which became due on January 15, 2013.” If D receives the
receipt without question, he cannot later on complain that the P100,000 payment should
have been applied first to the P100,000 debt due on March 15, 2013, because the same
bears an interest.
(c) If D or C does not make any designation, then the payment will be made to apply
first to the most onerous debt. Among the debts which are of the same kind, the most
onerous is the P150,000 due on March 15, 2013, because it is the one that bears interest
at the rate of 3% per annum. In this case, as of July 15, 2013, when payment was
tendered, the P100,000 debt due on March 15, 2013 will have already earned interest for
four months equivalent to P12,000. Hence, applying Art. 1253, the P100,000 payment
will be applied first to the interest of P12,000. The remaining P88,000 will be applied to
the principal obligation leaving an outstanding balance of P12,000 on the principal
obligation due for payment to C.
(d) Let us assume that in the example given in No. 18, the only debts owing from the
debtor to the creditor are :
which are both of the same kind, nature and burden. In this case, if neither the debtor nor
the creditor makes a designation, the rule in the 2nd paragraph of Art. 1254 will apply.
The payment of P100,000 will be applied proportionately to the two (2) debts. Hence,
P33,333.33 (P100,000/P300,000 X P100,000) will be deducted from the P100,000 debt,
and P66,666.67 (P200,000/P300,000 X P100,000) will be deducted from the second. The
first debt will have a remaining balance of P66,666.67. On the other hand, the second
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
debt will have a remaining balance of P133,333.33. The ratio here of the first debt to the
second debt is thus preserved, namely, 1 is to 2.
19. What is payment by cession? (Art. 1255)
In this special mode of payment, the debtor transfers all his properties, not
subject to execution, in favour of his creditors, so that the latter may sell them and apply
the proceeds to their respective credits.
(a) Unlike in dation in payment, the creditors do not become the owners of the
properties ceded by the debtor as payment for the debts. The creditors merely become
assignees of the debtor with authority to sell the properties.
(b) The debtor is released from his obligations but only to the extent of the net
proceeds of the sale, unless there is a stipulation to the contrary. The balance, therefore,
remains collectible from the debtor.
With the consent of C1, C2 and C3, D can assign the above properties in favour
of the said creditors, so that they may be sold. The proceeds from the sale of the
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
properties will then be used to satisfy the respective claims of the creditors. If the net
proceeds from the sale of the properties amount only to, let us say, P1.8M, then D is still
liable for the balance of P200,000 to the creditors.
It is the act, on the part of the debtor, of offering to the creditor the thing or
amount due. The debtor must, therefore, show that he has in his possession the thing or
money to be delivered at the time of the offer. Tender of payment is extrajudicial.
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 (Art. 1256, par. 1). Consignation is essentially judicial and,
therefore, presupposes the existence of a case filed in court by the debtor against the
creditor to compel the latter to accept the payment. Without a court case, there can be
NO consignation and the debtor will not be released from his obligation.
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
(a) When the creditor is absent or unknown, or does not appear at the place of
payment;
(b) When the creditor is incapacitated to receive the payment at the time it is due;
(c) When without cause, the creditor refuses to give a receipt;
(d) When two or more persons claim the same right to collect the obligation; and
(e) When the title of the obligation has been lost.
(a) The debtor may ask the court to order the cancellation of the obligation.
(Art. 1260, par. 2)
(b) The expenses of consignation shall be charged against the creditor.
(Art. 1259)
29. After having desposited the thing or sum due with the court, may the debtor still
withdraw the same? (Art. 1260, par. 2)
In such a case, the obligation shall continue in force, and the expenses for the
consignation shall be borne by the debtor.
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
30. What will be the effect if the creditor himself authorizes the debtor to withdraw the
deposit (a) after the creditor has accepted the consignation, or (b) after the court has
issued an order cancelling the debtor’s obligation? (Art. 1261)
(a) The debtor’s obligation to the creditor shall continue to subsist.
(b) The creditor shall lose every preference which he may have over the thing.
(c) The co-debtors, guarantors and sureties shall be released.
APPLICATION/PROBLEMS :
1. On January 15, 2012, Andrew borrowed money from Solo in the amount of P1M
due for payment on January 1, 2013 at 25% interest per annum. By end of October,
2012, Andrew suffered financial reverses so he went to visit his college best friend John.
Andrew asked John if he could borrow from John without interest to pay his P1M debt with
Solo which was to be due on January 15, 2013. John promised to help Andrew. Three
days after he saw John, Andrew luckily won in the Bingo games at SM, and partially paid
Solo the amount of P850,000. Unknown to Andrew, however, on the very day that he saw
John, John immediately went to Solo and paid Andrew’s debt in the amount of P1M plus
the 25% interest due in the amount of P250,000. Can John later on recover from Andrew
the entire P1,250,000 that he paid to Solo? Art. 1236
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
2. On March 15, 2012, Jun borrowed from Chris the amount of P350,000 payable
on March 15, 2013. As security for the loan, Jun mortgaged his 90-square meter lot in
Dasmarinas, Cavite, which was valued at P500,000, to Chris. On February 28, 2013,
Jun’s cousin, Lucille, paid Chris P350,000 without consulting Jun about it. When the
obligation, however, fell due on March 15, 2013, Jun was already insolvent. Arvin, the
husband of Lucille, now seeks to foreclose Jun’s 90-square meter mortgaged property, so
he and his wife can recover the P350,000 payment advanced by Lucille to Chris. Can
Arvin foreclose the mortgaged property? Art. 1237
3. Baldo obliged himself to deliver to Raoul a Jaguar car. Not having been able to
obtain a Jaguar, Baldo convinced Raoul to accept instead a Rolls Royce car which was a
more expensive car. Raoul, however, refused to accept a Rolls Royce, and insisted that
Baldo deliver to him a Jaguar. Is Raoul legally justified in refusing to accept the Rolls
Royce car considering that the same is even more expensive than the Jaguar car?
5. Marissa owes Retchel P100,000 due on December 15, 2013. On maturity date,
Marissa presented to Retchel a dated MBTC check in the amount of P100,000 with a
certification from the bank manager that Marissa was a client in good credit standing who
has been banking with MBTC for almost 30 years. Despite the tender of payment and the
certification issued by the bank manager, Retchel, however, refused to accept the
payment and insisted that Marissa pay her in cash. Is Retchel justified in rejecting this
tender of payment made by Marissa, it being certain that the amount of the check will later
on be cleared for sufficiency of funds in her (Retchel’s) favor? Art. 1249
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1232-1261)
defense, Ricky stated that every month, George’s collector went to the house of Ricky and
collected the rents, and issued a receipt therefor. For the past two months, however,
Ricky was ready and willing to pay the rents and waited for the collector as usual. But the
collector never showed up. Hence, Ricky’s rental arrears amounted to two months. Does
Ricky’s argument have legal basis? Art. 1251 (3rd par.)
7. Ben owes Jude P50,000 with 25% interest. On the due date, Ben tenders
payment to Jude but only for P50,000 when it should be P62,500. How will you apply the
payment? Art. 1253
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