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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 1231-1261)
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)
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
(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)
(a) The creditor.
(b) The creditor’s successor-in-interest (like an heir or assignee).
(c) Any person authorized by the creditor or by law to receive it.
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)
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
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)
(b) The check has lost its value because of the fault of the creditor.
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
12. Give the RULES regarding the place where payment shall be made.
13. What are the four (4) special modes or forms of payment under the Civil
Code?
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
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)
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
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.
(a) D will pay C the P100,000.00, and inform her that the said payment will
specifically be applied to the P100,000.00 debt due on March 15, 2016. D
cannot insist that C accept the payment for the P200,000.00 debt due on June
30, 2016 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
P100,000.00 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
P100,000.00, C (after receiving payment) may indicate in the receipt given to D
that: “I hereby acknowledge receipt from D of the amount of P100,000.00, which
is hereby applied to the P100,000.00 debt of D which became due on January
15, 2016.” If D receives the receipt without question, he cannot later on
complain that the P100,000.00 payment should have been applied first to the
P100,000.00 debt due on March 15, 2016, 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
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
same kind, the most onerous is the P150,000.00 due on March 15, 2016,
because it is the one that bears interest at the rate of 3% per annum. In this
case, as of July 15, 2016, when payment was tendered, the P100,000.00 debt
due on March 15, 2016 will have already earned interest for four months
equivalent to P12,000.00. Hence, applying Art. 1253, the P100,000.00
payment will be applied first to the interest of P12,000.00. The remaining
P88,000.00 will be applied to the principal obligation leaving an outstanding
balance of P12,000.00 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 P100,000.00 will be applied
proportionately to the two (2) debts. Hence, P33,333.33
(P100,000.00/P300,000.00 X P100,000.00) will be deducted from the
P100,000.00 debt, and P66,666.67 (P200,000.00/P300,000.00 X P100,000.00)
will be deducted from the second. The first debt will have a remaining balance of
P66,666.67. On the other hand, the second 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.
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
(d) The debtor must abandon all his properties not exempt from execution
in favour of the creditors; and
(e) The cession must be accepted by the creditors.
(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 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 P200,000.00 to the
creditors.
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
(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)
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)
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
APPLICATION/PROBLEMS :
1. On July 15, 2015, Andrew borrowed money from Solo in the amount of
P1M due for payment on July 15, 2016 at 25% interest per annum. By end of
April, 2016, 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 July 15, 2016.
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
P850,000.00. 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 P250,000.00. Can John later on
recover from Andrew the entire P1,250,000.00 that he paid to Solo?
Art. 1236
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
mortgaged his 90-square meter lot in Dasmarinas, Cavite, which was valued at
P500,000.00, to Chris. On February 28, 2016, Jun’s cousin, Lucille, paid Chris
P350,000.00 without consulting Jun about it. When the obligation, however, fell
due on March 15, 2016, 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 P350,000.00 payment advanced by Lucille to Chris. Can
Arvin foreclose on the mortgaged property? Art. 1237
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CHAPTER IV, SEC. 1 – Payment or Performance (Articles 1231-1261)
7. Ben owes Jude P50,000.00 with 25% interest. On the due date, Ben
tenders payment to Jude but only for P50,000.00 when it should be P62,500.00.
How will you apply the payment? Art. 1253
Confucius
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