Extinguishment of Obligations

Modes:

Obligation is Extinguish by: PaLoConMerComNo (Art. 1231)

I. PAYMENT or PERFORMANCE
Concept: not only delivery of money but also performance in any manner of any kinds of
obligations.
Burden of Proof: The one who alleges payment as defense has the burden to prove the
same (Defendant); BUT if the defendant (debtor) was able to introduce evidence of
payment the burden shifts to the Plaintiff (creditor) to show non-payment.
Requites:
1. Payment must be complete and regular.
 If the obligation has been completely delivered and rendered.
 The Creditor cannot be compelled to partially receive the prestations in
which the obligation consist neither may the debtor required to make
partial payments
 Exceptions: An incomplete/ irregular payment shall extinguished an
obligation in the following:
1. SUBSTANTIAL Performance in GOOD FAITH (at least more than 1
half)
2. Intentional WAIVER on the part of the creditor to insist on a
complete or regular payment;
 Cannot be deduced from his mere silent to accept there
must be an act. (When he accepts the performance
knowing its incompleteness or irregularity and without
expressing any protest or objection, the obligation is
deemed complied with).

2. Payment must be tendered by the proper person.

 Who are the persons authorize to accept payments: D/DAR 3aP3i

1. Debtor/ Duly Authorized Representative (DAR)
2. 3rd person authorized by the PARTIES to make payments
3. 3rd person who has interest in the fulfilment of the obligations (
Guarantor/ Surety)
 Effects if the payment does not came from D/DAR 3aP3i
o The option to accept or refuse payment resides with the
creditor;
 Creditor is not bound to accept the payment. Hence, Debtor
may not resort to consignation;
  But if the Creditor accepts payment shall be valid even the
payment was made without the knowledge or against the will
or the debtor;

If the payment is made by 3rd person whether he has interest or not he

is entitled for reimbursement;

 If the payment is without the knowledge of the debtor/ against

the will of the debtor the (1) PAYOR shall recover from the
debtor only in so far as the payment is beneficial to him (thus
limited only); (2) PAYOR is not entitle to be subrogated by the
rights of the creditor.
 If WITH CONSENT of the debtor- (1) Payor may demand full
payment; and (2) Subrogated to the rights of the creditor.
 If the PAYOR does not intend to be reimburse shall be deemed
to be a donation if with consent of the debtor. If none- payor in
case changes his mind may ask for reimbursement.

3. The person paying must have the capacity to make payment.

 If NO capacity: (1) Creditor cannot be compelled to accept payments;

(2) Consignation is not proper; (3) If he accepts payment is NOT VALID.
 If no capacity the payment can be recovered.

4.Payment should be made to the proper person:

 Art 1240-Person in whose favour the obligation was created (original

creditor); (2) Successor in interest (of the original creditor); (3) Person
authorized by law/ the creditor.
 GR: If payment is not made to OSA or to wrong person will not result to
extinguishment of the obligation even if the debtor acted in GF.
(Payment is not valid if not made to OSA or wrong person)
 Exceptions: Payment shall be valid even wrongly made
(1) If redounded to the benefit of the creditor;
GR: There must be a proof that indeed it redounded
o Burden of proof is on the part of the debtor to
prove that the payment redounded to the benefit of
the debtor;
Exceptions: Art 1241 ( No need to prove that payment
redounded to the benefit of the creditor).
After payment the 3rd person acquires the
creditors right; 2. If the Creditor ratifies the payment to 3rd
person; 3. If by Creditors conduct the debtor is led to
 believe that the 3rd person has authority to receive
payment.
(2) Payment is made in GF to any person in possession of
credit; and
Possessor of credit- not entitled to the payment
Example:
Situation 1:
The debtor executed a PN payable to a specified person
“the Creditor” without any assignment of the PN the PN
landed to a 3rd Person. If the 3rd person demanded payment
from the debtor and the latter pays. Here, the debtor
obligation will not extinguish since it is a wrong payment.
The 3rd person is a mere possessor of documents evidencing
the credit and not possessor of credit;

Situation 2: (Payment under the GR)

If the PN is a negotiable instrument payable to the order of
the creditor or payable to the creditor or his order. The
Creditor negotiates the instrument by indorsing it/
delivering it to a third person. The 3rd person demanded
payment to the debtor. Hence the payment is valid since
the 3rd person becomes the successor in interest of the
original creditor.

Situation 3:
If the PN is non nego and there is assignment of credit from
the original creditor to the assignee. The assignee
demanded payment to the debtor. Is that payment valid?
Yes, since the assignee will become successor in interest of
the original creditor.

Situation No 4 ( case falling under Art 1242)

The PN is a Nego in since payable to bearer the creditor
keep the PN in his drawer his officemate took the PN and
presented it to the debtor for payment. No notice to the
creditor that the PN is missing. Thus the debtor pays the PN
to the officemate. Is the officemate is he a proper party? No
he is not the creditor nor a successor in interest. Here the
3rd person is possessor of credit and the payment is made in
GF.
 (3) Debtor pays the previous creditor without notice of
assignment of credit.
 In assignment of credit the law requires notice
to debtor and not consent of debtor.

5.The person to whom payment is made must have the capacity to receive it.

 GR- payment to incapacitated person is VOID

 Exception: Payment shall be valid if: 1. The person incapacitated has
kept the thing delivered; 2. Insofar as the payment has been beneficial
to him.

6. Identity of the prestation must be preserved, such must be the very thing or service due
must be delivered or release.

Identity of the payment what must be paid:

If determinate obli- the creditor cannot accept except that which is due
If generic- cannot demand for a thing of superior quality nor deliver an inferior
quality
If delivery of Sum of Money- GR: in the currency agreed by the parties; absence
of agreement or if the agreement will rendered it impossible to deliver such
currency- made in legal tender
 Concept of Legal Tender: LT is the currency which has been made suitable
by law for the purpose of tender in the payments of debts. The kind of
money that debtor can compel his creditor to accept if tender in right
amount. In Philippines all coins and bills issued by BSP.
(2013) Coins Php1000- 1, 5, 10; Php 100- 1cents to 25 cents
 Checks is not a LT. Thus the creditor may refuse to accept the same as
payment. It shall produce the effect of payment only if 1. They have been
cashed; 2. They have been impaired through the fault of the creditor.
 If the check was use not as payment of debts but in EXCERCISE of RIGHT
such as R. Of Redemption/ R. of first Refusal/ R. of Repurchase tender of
payments through checks is sufficient to compel redemption.
 Extraordinary Deflation and Inflation- If occurred the value of the
currency stipulated at the time of the establishment of the obligation
shall be the basis of payment.
 Requisites of Extra Ordinary Inflation and Deflation: (1) There must be an
official declaration of extra-ordinary inflation and deflation; (2) That the
obligation is contractual in nature; (3) That the parties expressly agreed to
consider the effects of extra ordinary inflation/deflation.

7. Payment must be tendered in proper place.

Tender of payment (TP)must be made at the proper place otherwise the creditor may not be compelled
to accept payment.

GR

Special Forms of Payment: DCT

1. Daccion in Payment ( Daccion en pago)

Requisites:
1. The original obligation is payment in sum of money;
2. In lieu of money the debtor will offer to pay in form of property; ( If in form of service-
novation);
3. The Creditor must agree to it; It is contractual there must be agreement of the parties;

 Up to what extent the obligation will extinguish in Dation in Payment:

 The parties may agree up to what extent the obligation will extinguish. Absence of
agreement the obligation will extinguish up to the extent of the value of the
property (FMV).
 Dation in Pago is governed by the law on Sales.
 The object or amount of indebtedness is the price;
 Dation in Pago the purpose is to extinguish the liability and not to guaranty liability.

Dation in Pago Cessation

Specific properties that are identifiable
Does not required insolvency
Plurality of creditor is not required
If accepted by the creditor, there is a
corresponding transfer of ownership upon delivery
of the property. Not to the date of execution of
the dacion.
The universality of the property of the debtor;
Will only come to play in case of insolvency of the
debtor;
Plurality of creditors
No transfer of ownership upon delivery to the
creditor of the property of the debtor. Since the
property will be sold.
What extinguished the obligation is when the
proceeds of the sale were made as payment.

A mere tendered of payment without being followed by consignation will not extinguish
the obligation;

The consignation to be valid: (MANDATORY) Substantial compliance is not acceptable. The

compliance must be strict.

1. There must be a debt that is DUE;

 2. Prior announcement of the debtor intention to result to consignation; addressed not
only to debtor but to all person interested in the fulfilment of the obli. Mandatory if
not followed cogsignation is not valid;
3. The payment must be deposited in COURT;

Cogsignation is always a judicial act. Debtor filed action of cogsignation and you will
deposit the payment in court.
4. Post notice to the debtor and to all person interested in the fulmi of obli that the
payment is deposited in court;
If accept-valid payment
If not-litigation

When extinguish:
If there is no judgement and the creditor will just accept the money deposited;
If there is a litigation- wait for judgement of the court and such will retroact from the
date of filing of the complaint
The creditor unjustifiably refuse the tender of payment

Tender of payment- not only the intention or capacity but most importantly it is
necessary that the debtor is in the act of performing his obligation EXCEPT that the
performance is not accepted by the creditor.
ACTUAL PERFORMANCE OF HIS OBLI
Must be made absolutely without condition or qualification

Other causes other that those mentioned under Art. 1231

1. Annulment of the Obligation;

2. Recission;
3. Fulfillment of a resolutory condition;
4. Prescription

CONTRACTS

FORMALITIES:
GR: Contracts shall be obligatory in whatever form they may have been entered into, provided that all
the essential requisites for their validity are present.

 Simply means that no form is required for the contract to be binding between the parties;
 But the form may affect the validity or enforceability of the contracts;

EXCEPTION: That the requirement is absolute and indispensable.

(1) When the law requires that contract shall be in some form to be VALID;
(2) When the law requires that contract shall be in some form to be ENFORCEABLE;

CONTRACTS WHICH REQUIRE FORM FOR VALIDITY

 The Contract shall be VIOD or INVALID if the form is not complied with but the contract may
have been perfected (kasi nga pag perfection 2 lang naman yan either consensual which merely
require COC or Real which required COCD)
 The following Contracts require form for validity:
1. Donation of Personal Property if the value exceed 5K- The donation and acceptance
must be in writing; ( note if below 5k no form is required);
2. Donation of Real Property- regardless of the value both donation and acceptance
must be in public documents (whether in single/ separate documents);
3. Donation propter nuptias (same rules as ordinary donation);
4. Contract of partnership, when real property is contributed as capitals- it is necessary
that there must be (1) inventory of property, (2) signed of the parties and (3)
attached to the public instrument.
5. Sale of parcel of land or any interest therein through an agent (The authority of the
agent must be in writing otherwise void);
6. Stipulation limiting common carrier liability (to limit the liab in case of loss
destruction and deterioration to a degree which is less than extra ordinary diligence
the same must be in writing and sign by the shipper or owner.)
7. Contract of antichresis (it is necessary that the amount of the principal and the
interest is in writing the law does not required that the antichresis be in writing; the
principal and interest may be stated in the principal loan)
8. Sale or transfer of large cattle ( must be register with the City/ Municipality
Treasurer and Certificate of transfer is required to be issued)
9. Chattel Mortgage Contract- In public documents and must be register before the
Chattel Mortgage Registry; If not recorded not valid even between the parties;
 In the case of Filipinas Marble vs IAC- that a CM which is not register is valid
between the parties; Basis is Art 2125 (pero sabi ni Rabuya erroneous daw
kasi yung Art 2125 pertains to REM. Hence inapplicable to CM kasi nga ang
suppletory sa CM ay provision ng PLEDGE not REM)

CONTRACTS WHICH REQUIRES FORM FOR ENFORCEABILITY

 Art 1403- Statute of Frauds it requires certain classes of contract to be in
writing to be enforceable;
 If not complied with- no action can be enforce unless the requirement is
complied with.
 The agreement covered by statute of Fraud shall be unenforceable by action
unless the agreement is in some note, memorandum or in writing and
subscribed by the party charge or his agent.