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EXTINGUISHMENT OF OBLIGATIONS PAYMENT – Not only the delivery of money

but includes the performance of an
*Enumeration is non-exclusive obligation in any other manner.
Principal modes of extinguishing relationship Kinds of performance or payment:
between parties: PaLoCo3No
1. Normal or voluntary – debtor paid
1. Payment obli on his own volition, not because
2. Loss of the thing due he was told to pay.
3. Condonation or remission
4. Confusion or merger of rights of the 2. Abnormal or involuntary – obligor is
creditor and debtor ordered to pay.
5. Compensation – Classification:
6. Novation ○ Specific – obligor is compelled
to perform a specific act;
Other modes:
applies to only to give.
1. Annulment of the contract ○ Substitute – the debtor is
2. Rescission of the obli substituted by a 3rd person, at
3. Fulfillment of the resolutory condition the expense of the debtor, if the
4. Prescription obli is not personal to the
*Death (not absolute) – refers to the ○ Equivalent – the economic
death of the debtor; may be applied equivalent of the obli is given.
only if the obligation is personal to the
obligor. Under the Law on Succession, Requisites of a valid payment:
the estate of the deceased includes all 1. Parties (debtor and creditor)
the rights, and oblis of that person 2. The thing to be paid
which are not extinguished by death. 3. Time, place, and manner of payment
*Mutual dissent – an agreement bet. Parties
the parties to mutually withdraw from
the contract. This should not be – There must be at least two parties.
confused with rescission. Rescission
requires the existence of either of the – What is required is the plurality of parties,
two grounds: lesion or fraud, while not of persons, such that a person who
mutual dissent requires none because represents at least two parties may effect
its basis is the agreement of both a valid payment by himself.
parties to withdraw. Rescission always
results in abrogation and, usually, in – Anyone can make payment – even a 3rd
mutual restitution, except in cases person.
where the law does not allow such,
while in mutual dissent, the only effect – Only those who have an interest in the
produced is abrogation; restitution fulfillment of the obli can compel the
depends upon the agreement of the creditor to accept payment. These are the
parties. Rescission may be available to debtor, his heirs, successors-in-interest,
3rd persons who suffer injury because assignee, or anyone authorized by him to
of the contract sought to be rescinded, make payment. His co-debtors, guarantor
while mutual dissent is not available to and surety are also included. The persons
3rd persons. enumerated have as much right or
interest as the debtor in fulfilling the obli
---- because once the obli is extinguished,
they are relieved from their obli.

– Payment made by a 3rd person is valid

– Generally, payment must be made to the only if accepted by the creditor. Consent
creditor, but payments may also be made of debtor is not necessary for the validity
to his heirs, successors-in-interest, or his of such payment, but it becomes
agent. essential in determining the rights of the
3rd person against the debtor.
– There is dispute as to the requirement of
capacity of the debtor and creditor for the – Effect of payment by 3rd person: Payment
validity of payment. Some say the need is valid if accepted by the creditor.
for the capacity of both is absolute, while
some qualify and distinguish between obli – Rights of the 3rd person:
to give and obli to do or not to do. *If the 3rd person made the payment
without the knowledge of the debtor,
○ In obli to give, where there is a he acquires only the right to reimburse
juridical transaction where ownership, only up to the extent that the debtor
dominium or title of the thing being may have been benefited (conditional
given is involved, capacity becomes reimbursement).
necessary because incapacitated
persons cannot effectively transfer *If payment was made with the
ownership from himself to the creditor. consent of the debtor, the 3rd person
acquires the right of absolute
– It can be said that the capacity of both reimbursement and he is subrogated
the creditor and debtor is essential. The into the rights of the creditor.
capacity of the debtor is necessary to be
able to effectively transfer title of the – Kinds of subrogation:
object given to the creditor. The capacity ○ Conventional – never presumed;
of the creditor is also equally necessary agreement of the parties
to be able to give a valid release from the ○ Legal – GR: cannot be presumed. XPN:
obli. (a) when a creditor pays another
creditor who is preferred; (b) 3rd
○ GR: Payment to incapacitated creditor person who is not interested in the
is invalid. fulfillment of the obli pays with the
○ XPN: Such remains valid if: consent of the debtor; (c) 3rd person
1. The payment redounds to the who has an interest in the fulfillment
benefit of the creditor, and; pays even without the consent of the
2. The creditor retains or keeps the debtor.
thing paid
– Rights of guarantor against the debtor:
– “Benefit” in XPN #1 refers to any kind of absolute reimbursement and subrogation.
benefit EXCEPT sensual benefit.
– Payment made to a 3rd person is invalid,
– Payment made by an incapacitated except if such payment redounded to the
person will not be valid, neither will it be benefit of the creditor. Debtor must prove
void. It is simply voidable. such benefit, except if:
• After payment, the 3rd person acquires
– There can be recovery if what has been the creditor’s rights.
paid has not been consumed. In other • Creditor ratifies the payment to the 3rd
words, payment is annullable. But there person.
can be no recovery if the payment has • By the creditor’s conduct, the debtor
been consumed in good faith, in which has been led to believe that the 3rd
case, the payment becomes valid. person had authority to revive the

• Requisites for negotiability:

– If a 3 person pays without intention of ○ Must be in writing and signed by
seeking reimbursement, such payment is the maker or drawer
considered by law as a donation which ○ Contains an unconditional promise
must be accepted by the debtor. If debtor or order to pay a sum certain in
does not give his consent, there is no money
donation, and the 3rd person acquires the ○ Payable on demand or at a fixed,
right to reimbursement and subrogation. future time
If debtor opposes, there will be no ○ Payable to order or to bearer
donation, and the 3rd person acquires the ○ Instrument is addressed to a
right to reimburse to the extent which the drawee who must be named or
debtor was benefited. otherwise indicated therein with
reasonable certainty.
– The debtor cannot compel the 3rd person
to accept reimbursement. – An obli falls due when it becomes
demandable, such that the creditor
– Payment made in good faith to a person acquires the right to enforce the obli.
in possession of the credit shall
extinguish obli. Place of payment

– No provision of law that dictates where

demand must be made, but the law
Thing to be paid provides for the place of payment. (Art.
– This refers to the object of the prestation,
– If creditor demands payment in a place
not the obli. The object to be paid cannot
other than the proper place, debtor can
be another object that is merely similar to
refuse to pay w/o incurring delay.
that contemplated by the parties.
Likewise, if debtor offers to pay in a place
other than the proper place, creditor can
– If the object is specific, the very same
refuse w/o incurring delay.
thing promised should be paid. If the
object is generic, the thing paid must Manner of payment
belong to the class of the thing agreed
upon in the contract. – Manner of payment must be in
accordance with the tenor of the obli.
– The debtor cannot compel the creditor to
accept something of inferior quality. In – Checks do not produce payment until
the same manner, the creditor cannot encashed because checks are not legal
compel the debtor to deliver something of tender. They are mere representations of
superior quality. money. The validity of payments made
• XPN: Dation in payment with checks depends on the kind. If the
check used is certified, as the SC held in
Time of payment the case of New Pacific Timber v. Sener,
the payment is valid. The SC also ruled in
– GR: Payment must be made on the day
Co v. PNB that payment by manager’s
the obli falls due, even if it be a Sunday or
check is valid.
holiday. XPN: When the instrument
presented for payment is covered by the
– Legal tender is that currency which when
Negotiable Instruments Law which
offered as payment for a debt, whether
provides that when an obli falls due on a
public of private, the creditor cannot
Sunday or holiday, the instrument must
refuse to accept.
be presented for payment on the
succeeding business day.

– Under RA 8183, which repealed the – Deprivation in law (deprivation by virtue

Uniform Currency Act, parties may agree of a final judgment) will fall under the Law
on the currency to be used in the on Sales and gives rise to the
payment of an obli. enforcement of warranty against eviction.

Characteristics of payment: – There can be no dation in payment

without the consent of the creditor
1. Integrity – GR: complete performance
because it involves a substitution or
is necessary to extinguish obli.
change in the object of the obli.
XPN: (a) Substantial performance.
There must be attempt in good faith
to comply and the deviation is not *Art. 1250 speaks of extraordinary inflation
substantial. Creditor does not lose the or deflation. The value of the currency at the
right to recover damages. time of the establishment of the obli shall be
the basis of determining the payment
(b)Waiver/estoppel on the part of the EXCEPT when the parties agreed otherwise.
creditor. There is full compliance but
not in accordance with the obli, and *The SC held in Spouses Suapangco v.
the creditor, being aware of such Manotoc Realty Corp. that Art. 1250 does not
irregularity, accepts it and does not apply when the obli is payable in Phil. legal
protest it. tender, bec. the article refers to “currency”,
which means that the law is not referring to
2. Identity – GR: Obli is fulfilled or Phil. peso but a foreign currency.
performed only by giving that which
has been agreed upon. Application of Payment

– Designation of debt when there are

XPN: Dation in payment.
several debts to a creditor.
3. Indivisibility – GR: Debtor cannot
– Principally, it is the debtor who can make
compel the creditor to accept partial
an application of payment. Failure of the
payment, neither may the creditor
debtor to make application automatically
compel the debtor to render partial
allows the creditor to make application.
– If both parties fail to make application,
XPN: (a) parties have agreed on
the More Burdensome Rule will apply.
partial performance
– Limitations on the right to apply:
(b) Obli is partly liquidated and partly
• Debtor can’t make application of
payment in a manner as to compel
the creditor to accept partial
Dation in Payment – debtor alienates
property in payment of a debt in money.
• If there is a stipulation on how to
apply payment, such must be
– Does not apply only to debts in money;
governed by the Law on Sales; Barter is
• If obli is interest-earning, payment
also covered by the Law on Sales.
shall not be applied to the principal
without first applying it on the
– Eviction will not revive the orig obli.
Remedy of the creditor who is evicted is
• GR: Application on payment can’t
to enforce the right of the vendee under
be made on debts that are not due.
the Law on Sales – right to recover the
XPN: (a) parties so stipulate; (b)
price paid plus interest thereon.
when the application is made by


the party for whose benefit the – 2-notice rule: 1st notice: notice of the
term has been constituted. intent to consign. 2nd notice: notification
informing the creditor of the consignation
Cession of the thing. Absence of one of these
notices will constitute a valid defect and
– Debtor abandons property in favor of the
will invalidate the consignation.
creditor so that the latter may dispose of
the property in order to apply the same to
– Consignation may be made judicially or
the debts.
extra-judicially. Extra-judicial
consignation, is governed by BP 25, which
– If one creditor objects to the payment by
refers to rentals in arrears. Extra-j is done
cession, the remedy for the debtor is
through opening an account in a bank in
voluntary insolvency to attain the same
the name of the creditor or lessor to
enable such person to withdraw/claim
Tender of Payment and Consignation what has been deposited. In extra-j, the
debtor can’t withdraw the thing. Judicial
– Tender of payment is the offer to pay. consignation is obviously done with the
– Consignation is the act of depositing the
thing due or placing the same under – If deposit is made in a place that is not
judicial authority/disposal when the the proper place of payment, the court
creditor refuses to accept payment held in the case of Chua Kay v. Lim Chang
without just cause. that in case of loss of the thing, even if
due to fortuitous event, such will not
– Requisites: (a) valid tender of payment extinguish the obli.
(satisfies the requisites of payment); (b)
depositing the thing due to judicial – The debtor may withdraw what has been
disposal. deposited during the pendency of the
case because he still owns the thing.
– There may be consignation without valid However, the obli will subsist. He may
tender of payment (Art. 1256): also withdraw even after the consignation
• Creditor is absent, unknown, or is declared proper, provided that the
does not appear at the place of creditor consents to the withdrawal. In
payment. (He must have had no this case, the obli will remain but the
legal representative) creditor will lose his preference over the
• Creditor is incapacitated at the object and the parties interested in the
time the obli falls due, or at the fulfillment of the obli will have to be
time payment, or offer of payment, released from the obli.
is made. (Also, there must have
been no legal representative) – The creditor may prevent the debtor
• Creditor, without just cause, from withdrawing by claiming what has
refuses to give a receipt. been deposited.
• 2 or more persons claim the right – If the creditor claims the thing w/o
to collect. reservation, it will extinguish obli. If he
• Title of the obli has been lost. claims it w/ certain reservations, then his
withdrawal will only partially extinguish
– Obli is extinguished when (a) creditor the obli.
claims the thing consigned, or (b) the
court declares that the consignation was – Consignation is not proper if what is
properly made. involved is the right of option or the right
of redemption because there is no debt

Loss of the thing due extinguishment of that solidary tie, and

result in the conversion of the solidary
– Effect depends: obli to joint.
○ Specific – (a) due to the fault of
debtor – not extinguished; (b) not due Confusion or merger of rights
to the fault of debtor – extinguished
XPN: Exceptions to loss due to – The characters of debtor and creditor
fortuitous event. meet in one and the same person.
○ Generic – not extinguished.
Effect of confusion that occurs in the person
of the debtor
– Loss of obli to do occurs when there is
impossibility of performance or difficulty – If there is only one debtor and one
of performance. creditor, the obli is automatically
– Impossibility of performance happens – If there is plurality of debtors, and the
when such performance is impossible confusion occurs in the person of a
because it is against laws (legal debtor, depends on the nature of the obli:
impossibility) or the laws of nature ○ Joint obli – what is extinguished is only
(physical impossibility). the share of that debtor in the obli.
○ Solidary obli – obli is extinguished
– There is difficulty of performance when
the obli requires extraordinary effort that – If confusion takes place in the person of
goes beyond the contemplation of the the guarantor, this shall extinguish only
parties. the contract of guaranty, but not the
principal obli.
Condonation or remission of the debt Compensation
– It is an act of liberality; it is in the nature – Two persons or two parties are debtors
of a donation. and creditors of each other. (Not
necessarily reciprocal, but it is bilateral)
– Not the same as renunciation because
renunciation or waiver is a unilateral act – Not the same as confusion. In confusion,
while condonation or remission requires there is only one obli involved, while in
bilateral act because the law requires compensation, there are at least two oblis
acceptance of the condonation. involved. In confusion, there is only one
party involved because the characters of
– Condonation may be done impliedly (in debtor and creditor meet in one and the
any form), or expressly (must satisfy the same person. Whereas in compensation,
requisites prescribed by law with respect there are two parties involved.
to form under the law on donation).

Effect of condonation:

– If the obli condoned entirely was a joint or Kinds of Compensation

solidary obli, there is total extinguishment
of the obli. If only a part of the obli has – Legal – takes place by operation of law
been condoned, it will give rise to partial – Conventional – takes place by agreement
extinguishment only. of the parties
– Judicial – decreed by the court
– If what was condoned was merely the – Facultative – a party is entitled to oppose
solidary tie, then the effect is it when compensation is invoked by the

other but the one who can oppose is not creates a new one to take the place of the
precluded from invoking compensation. extinguished one.

Requisites of Compensation – Also includes the simple case of

– Parties must be bound principally in their
own rights (XPN: Guarantor who is Novation may either be:
allowed by law to claim compensation
with respect to what the creditor owes – Extinctive – old obli is extinguished and
the principal debtor) a new one is created
– Both debts must consist of a sum of – Modificatory – no extinguishment of
money or if fungible goods, although the obli. It simply modified the obli.
law uses “consumable”, they must be the
same kind and quality (Not necessary 3 ways by which novation may take
that they be of the same amount for place:
compensation may be partial or total. If
– Changing the object or any other
one of the debts is in money and the
principal conditions of the obli –
other is in goods, there can be no
principal, not accessory condition. This is
compensation, only dation)
called real or objective novation, which
– Both debts must be due
refers to a change in the (a) cause of the
– They be liquidated and demandable
obli; (b) object of the obli; (c) any of the
– Over neither of them there be any
principal conditions of the obli
retention or controversy, commenced by
3rd persons and communicated in due
– Subsititution of the person of the debtor:
time to the debtor

*In legal compensation, it is necessary ○ Expromision – initiative for the

that all requisites must concur in order for change of debtor comes from the 3rd
compensation to take place. But in person. Consent of creditor is
conventional compensation, no, because necessary.
the law allows compensation even if one ○ Delegacion – initiative comes from
debt is not due or liquidated as long as the debtor himself. Consent of all
both parties agree. parties is necessary.

Facultative compensation – Kinds of oblis *Effect of insolvency of substitute:

that come under it: Obli arising from:
*In expromision, the old obli will
– Deposits not be revived.
– Commodatum
– Support *In delegacion, GR is the old obli
– Civil liability arising from crime will also not be revived, XPNs are: (1) if at
the time of substitution, the new debtor is
already insolvent and such is of public
knowledge; and (2) if at the time of the
substitution, insolvency of the new debtor
was already existing, although such is not
publicly known, yet it is known to the

– Not an absolute mode of extinguishment,

– Subrogating a 3rd person into the rights of
it is only relative because it plays a dual
the creditor
role. While it extinguishes an obli, it


Requisites of a valid novation:

– Old valid obli

– New valid obli
– Substantial difference between the two
– Parties to both oblis must be capacitated.
Capacity must be possessed at the time
of the constitution of the old obli and at
the time of the establishment of the new