OBLICON NOTES || REGADO

CHAPTER 4 SECTION 1. – Payment or Performance

EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)
Art. 1231. Obligations are extinguished: MEANING OF PAYMENT
 Delivery of money
(1) By payment or performance:
 (1) Delivery of money or (2) Giving of thing other than money
(2) By the loss of the thing due:  In law, payment and performance are synonymous
(3) By the condonation or remission of the debt; ELEMENTS OF PAYMENT (COMMON LAW DOCTRINES)
(4) By the confusion or merger of the rights of creditor and debtor; 1) Persons (whom to pay and whom payment may be made)
(5) By compensation; 2) Thing or object in which payment must consist
(6) By novation. 3) Cause
4) Mode and form
5) Place and time payment must be made
Other causes of extinguishment of obligations, such as annulment, rescission,
6) Imputation of expenses occasioned by it
fulfillment of a resolutory condition, and prescription, are governed elsewhere 7) Special parts which may modify the same and the effects they generally produce
in this Code. (1156a) BURDEN OF PROVING PAYMENT
CAUSES OF EXTINGUISHMENT OF OBLIGATIONS IN ADDITION TO ART 1231  When existence of debt is fully established by evidence, the settled rule is that the burden
(1) Death of party (personal obligations) of proving extinguishes by payment devolves upon the debtor who pleads payment or
(2) Mutual Desistance or withdrawal offers defense
(3) Arrival of a resolutory period  Only when the debtor introduces evidence that the obligation has been extinguished does
(4) Compromise the burden shift to the creditor
(5) Impossibility of fulfillment BEST EVIDENCE OF PAYMENT
(6) Happening of a fortuitous event  Receipt
MODES OF EXTINGUISHMENT OF OBLIGATION
(1) VOLUNTARY (2) INVOLUNTARY Art. 1233. A debt shall not be understood to have been paid unless the thing or
A. PERFORMANCE A. BY REASON OF SUBJECT service in which the obligation consists has been completely delivered or
1. Payment 1) Confusion
rendered, as the case may be. (1157)
2. Consignation 2) Death of contracting parties in personal
DEBT
B. SUBSTITUTION obligations
 May refer to obligation to deliver money or thing other than money, to do or not to do an
1. Dacion en pago (conveyance of B. BY REASON OF OBJECT
act
payment) 1.) Lost of thing due/impossibility of
REQUISITES TO CONSIDER DEBT PAID
2. Novation performance
1) Integrity of Presentation
C.BY RELEASE AGREEMENT C. BY FAILURE TO EXERCISE (RIGHT
- Presentation fulfilled completely
1.) Agreement subsequent to constitution of OF ACTION)
- Partial or Irregular performance does not extinguish obligation
obligation 1. Extinctive prescription
- EXCEPTIONS : ART 1234 & 1235
a) Mutual waiver
2) Identity of Prestations
b) Unilateral waiver
- Very prestation due must be delivered or performed
c) Remission
2.) Agreement Simultaneois to constitution of
Obligation Art. 1234. If the obligation has been substantially performed in good faith, the
a) Resolutory Condition obligor may recover as though there had been a strict and complete fulfillment,
b)Extinctive period less damages suffered by the obligee. (n)
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RECOVERY ALLOWED IN CASE OF SUBSTANTIAL PERFORMANCE IN 2) Evince that he is not satisfied

GOOD FAITH
 Obligee is benefited Art. 1236. The creditor is not bound to accept payment or performance by a
 Obligor should be allowed to recover as if there had been a strict and complete third person who has no interest in the fulfillment of the obligation, unless
fulfillment less damages suffered by the oblige. there is a stipulation to the contrary.
 Last condition affords a just compensation for the relative breach committed by Whoever pays for another may demand from the debtor what he has paid,
obligor except that if he paid without the knowledge or against the will of the debtor,
 Recognition that there has been a strict & complete fulfillment (subject to he can recover only insofar as the payment has been beneficial to the debtor.
damages) (1158a)
REQUSITES FOR APPLICATION OF 1224
1) Substantial performance PERSONS FROM WHOM CREDITOR MUST ACCEPT PAYMENT
- Substantial compliance: Essential requirements 1) Debtor
- Breach is only of inconsequential nature and causes no serious harm 2) Any person: Interest in Obligation
to obligee; slight or technical and unimportant 3) Stipulation : 3P no interest when there is stipulation that he can make
- (x) material breach of the contract payment
2) Obligor : In Good faith CREDITOR MAY REFUSE PAYMENT BY THIRD PERSON
- Good faith is presumed in absence of proof to the contrary  Personal reasons (trust, confidence, preference of dealing) must be considered
EFFECT OF PAYMENT BY THIRD PERSON
Art. 1235. When the obligee accepts the performance, knowing its W/O knowledge or against the will of W/ Knowledge of debtor
incompleteness or irregularity, and without expressing any protest or debtor
objection, the obligation is deemed fully complied with. (n) Recovery only up to the extent or Payer shall have all the rights of
RECOVERY ALLOWED WHEN INCOMPLETE OR IRREGULAR amount of debt at time of payment reimbursement and subrogation.
PERFORMANCE WAIVED No subrogation to the rights of creditor
 Founded on the principle of estoppel /Waiver of right such as those arising in mortgage,
 If payment is incomplete or irregular, creditor may properly reject it guarantee or penal
REQUISITES OF ART 1235
1) Knowledge: Incomplete/Irregular performance
2) Accepts performance without protest or objection
MEANING OF ACCEPT Art. 1237. Whoever pays on behalf of the debtor without the knowledge or
 Satisfactory/Sufficient/Give Assent or Agree to an incomplete or irregular against the will of the latter, cannot compel the creditor to subrogate him in his
performance rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)
 Mere receipt of partial payment (x) ; to imply creditor accepts partial payment, RIGHT OF THIRD PERSON TTO SUBROGATION
his acceptance must be made under circumstances that indicate his intention to  If without knowledge or against the will of the debtor, third person cannot
consider the performance complete and to renounce his claim from defect compel creditor to subrogate him in the latter’s accessory rights of mortgage,
DEBTOR WHO ALLEGES BAD FAITH :: PROVE IT ; GOOD FAITH IS guaranty or penalty
PRESUMED  Art 1237 is for the benefit of the debtor, subrogation can only take place with
FORM OF PROTEST OF CREDITOR his consent
 No specific form required  Third persons who wout necessity paid under such conditions is amply
1) Reasonable time protected by his right to reimbursement
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 **Art 1236 & 1237 does not apply where no debtor-creditor relationship exist FREE DISPOSAL OF THING DUE AND CAPACITY TO ALIENATE
between persons or whose behalf the payment was made REQUIRED
 Legal subrogation or subrogation by operation of law is presumed  As a general rule, in obligations to give, payment by one who does not have the
SUBROGATION REIMBURSEMENT free disposition of thing due or capacity to alienate it is not valid
Person who pays for the debtor is put Third person is entitled merely to the bare  Thing paid could be recovered
in the shoes of the creditor right to be refunded to the extent of Art  Exception : Art 1427 : Minor between 18-21 who has entered into a contract
1236 (2) without right to guarantees and without consent of parent/guardian, voluntarily pays sum of money or delivers
securities of obligation fungible thing in fulfillment of obligation, there shall be no right to recover the
Right of reimbursement + other rights 1236 (2) Whoever pays for another may same from the oblige who has spent or consumed it in good faith
of a creditor pertaining to credit demand from the debtor what he has paid,  Creditor cannot be compelled to accept payment where person paying has no
against he debtor or third persons except that if he paid without the capacity to make it
knowledge or against the will of the
debtor, he can recover only insofar as the Art. 1240. Payment shall be made to the person in whose favor the obligation
payment has been beneficial to the debtor. has been constituted, or his successor in interest, or any person authorized to
No real extinction of obligation but receive it. (1162a)
only a change in creditor PERSON TO WHOM PAYMENTS SHALL BE MADE
a) Creditor or Obligee (in whose favor the obligation has been constituted)
Art. 1238. Payment made by a third person who does not intend to be b) His successor in interest
reimbursed by the debtor is deemed to be a donation, which requires the c) Any person authorized to receive it
debtor’s consent. But the payment is in any case valid as to the creditor who  Creditor time of payment ; (x) Time of constitution of obligation
has accepted it. (n)  Generally, to discharge an obligation, payment should be made to the proper
PAYMENT BY THIRD PERSON WHO DOES NOT INTENT TO BE person set forth in Art 1240
REIMBURSED  When payment is made to a wrong party: Obligation is not extinguished as to
 Embodies the idea that no one should be compelled to accept the generosity of the creditor who is without fault or negligence even if debtor acted in utmost
another goof faith and by mistake as to the person of the creditor or through fraud
 Donation, to be valid requires the debtors consent induced by a third person ----as long as there is no bad faith on the part of the
 However if the creditor accepts payment, it is valid as to him and the payor creditor
although the debtor did not give consent to the donation MEANING OF ANY PERSON AUTHORIZED TO RECEIVE IT
 Not only person authorized by creditor but also a person authorized by law to
Art. 1239. In obligations to give, payment made by one who does not have the receive payment (Guardian, executor, administrator, liquidator)
free disposal of the thing due and capacity to alienate it shall not be valid,  Payment made to agent
without prejudice to the provisions of Article 1427 under the Title on “Natural - Special Power of Attorney + Nature and extent of alleged powers
Obligations.” (1160a)  There must be diligence on the part of the payor to atleast ascertain the
MEANING OF FREE DISPOSAL OR CAPACITY TO ALIENATE authority of the person authorized to receive
1. Free disposal of the thing due  Under Art 1242: Payment in good faith to any person in possession of credit is
 Thing to be delivered must not be subject to any clam or lien or encumbrance of a valid although such person may not be authorized to receive payment
third person Art. 1241. Payment to a person who is incapacitated to administer his property
2.Capacity to Alienate shall be valid if he has kept the thing delivered, or insofar as the payment has
 Capacity to enter into contract been beneficial to him.
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Payment made to a third person shall also be valid insofar as it has redounded
to the benefit of the creditor. Such benefit to the creditor need not be proved in
the following cases:
(1) If after the payment, the third person acquires the creditor’s rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor’s conduct, the debtor has been led to believe that the third
person had authority to receive the payment. (1163a)
EFFECT OF PAYMENT TO AN INCAPACITATED PERSON
 Not valid
 Unless (1) Kept thing delivered (2) Beneficial to him
 In absence of benefit; it need not to be proved in the 3 cases metioned above
 Proof of benefit : incumbent upon debtor
 In Art 1240,payment should be made to his legal representative or through
consignation in proper court
EFFECT OF PAYMENT TO THRID PERSON
 GF: Debtor :immaterial
 The creditor was benefited by the payment made by the debtor to the 3P is not
presumed and must therefore be satisfactorily established by the person in
interest in proving the fact
 Absence of such proof, payment : error of law and in good faith
 Absence of such proof, payment thereof in error and in law
WHEN BENEFIT TO CREDITOR NEED NOT BE PROVED BY DEBTOR
1) Subrogation of payer in credtor’s rights
2) Ratification by creditor
3) Estoppel on part of the creditor
 Through estoppel, an admission or representation is rendered conclusive upon
the person making it and cannot be denied or disproved as against person
relying thereon
Art. 1242. Payment made in good faith to any person in possession of the credit
shall release the debtor. (1164)
PAYMENT TO THIRD PERSON IN POSSESSION OF CREDIT
 Possession = possession of credit itself and not merely he documents or
instruments evidencing the credit
 Mere possession of instrument does not entitle holder to payment nor does
payment release debtor
 Payer must act in good faith; honest belief : Valid payment
 Goof faith presumed
Art. 1243. Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid. (1165)
WHEN PAYMENT TO CREDITOR IS NOT VALID
 This provision can only be invoked by creditor
 Payment made subsequently by debtor-stranger shall not be valid if plaintiff
wins the case and cannot collect from debtor to whom payment is made.
GARNISHMENTOF DBETOR’S CREDIT
 Proceedin : purpose of subjecting debtor’s payment of debt of another
 Specie of attachment by means of which the plaintiff seeks to subject his claim
the property of defendant in the hands of third person (garnishee) or money
owed by such third person to defendant
 In a nature of an involuntary novation by substitution of one creditor of another
 Consists in the citation of some stranger to the litigation who is debtor to one of
the parties in action.
 Require: pa debt no to his former creditor but to the new creditor who is
creditor in the main litigation
Art. 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more valuable
than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by
another act or forbearance against the obligee’s will. (1166a)
VERY PRESTATION DUE MUST BE COMPLIED WITH (IDENTITY OF
PRESTATION)
(par 1) Real obligation to deliver a specific thing
- thing different from that due cannot be offered or demanded against
will of the debtor or as the case may be
(par 2) Personal obligation (to do or not to do)
- Act to be performed or an prohibited cannot be substituted against
obligor’s will
WHEN PRESTATION MAY BE SUBSTITUTED
1. When oblige consents
2. Facultative obligations
Exception to the exception
- Facultative obligations ; debtor is given the right to render another
prestatio in substitution
- Waiver of such : In a stipulation
Art. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales. (n)
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SPECIAL FORMS OF PAYMENT
1) Dacion in payment
2) Application of payments
3) Payment by cession
4) Tender of payment
MEANING OF DATION IN PAYMENT
 Conveyance of ownership of thing by the debtor to creditor as an accepted
equivalent of performance of the monetary obligation
 Special form of payment ; not an ordinary way of extinguishing obligation
 Conveyance of ownership (thing) = Performance of a monetary obligation
(Money)
REQUISITES OF DATION IN PAYMENT
1) Performance of prestation in lieu of payment
2) Difference of thing due and which is given in substitution
3) Agreement between Creditor & Debtor : Extinguished by reason of
performance of prestation is different from what is due.
Art. 1246. When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation and other
circumstances shall be taken into consideration. (1167a)
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required
by the payment shall be for the account of the debtor. With regard to judicial
costs, the Rules of Court shall govern. (1168a)
Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation
consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. (1169a)
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in
the abeyance. (1170)
Art. 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary. (n)
Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be at
the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay,
the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
(1171a)
SUBSECTION 1. – Application of Payments
Art. 1252. He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them
the same must be applied. Unless the parties so stipulate, or when the
application of payment is made by the party for whose benefit the term has
been constituted, application shall not be made as to debts which are not yet
due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a
cause for invalidating the contract. (1172a)
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Art. 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered. (1173)
Art. 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application can not be inferred from other circumstances,
the debt which is most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately. (1174a)
SUBSECTION 2. – Payment by Cession
Art. 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for the net proceeds of the
thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws.
(1175a)
SUBSECTION 3. – Tender of Payment and Consignation
Art. 1256. If the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility
by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of
payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Art. 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment of
the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance
with the provisions which regulate payment. (1177)
Art. 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested parties shall also be notified
thereof. (1178)
Art. 1259. The expenses of consignation, when properly made, shall be charged
against the creditor. (1178)
Art. 1260. Once the consignation has been duly made, the debtor may ask the
judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force. (1180)
Art. 1261. If, the consignation having been made, the creditor should authorize
the debtor to withdraw the same, he shall lose every preference which he may
have over the thing. The co-debtors, guarantors and sureties shall be released.
(1181a)