C H A P T E R 4 ART. 1235 When the obligee accepts the performance, knowing its EXTINGUISHMENT OF OBLIGATIONS incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. GENERAL PROVISIONS GENERAL RULE ART. 1231 An obligation is understood to have been paid or performed when: Obligations are extinguished: TO GIVE 1. By the payment or performance; The debtor or obligor has completely delivered the thing which he 2. By the loss of the thing due; had obligated himself to deliver. 3. By the condonation or remission of the debts; TO DO 4. By the confusion or merger of the rights of the creditor and The obligor has completely rendered the service which he had debtor; obligated himself to render. 5. By compensation; NOT TO DO 6. By novation. The obligor has completely refrained from doing that which he Other causes of extinguishment of obligations, such as annulment, had obligated himself not to do. rescission, fulfillment of resolutory condition, and prescription, are governed elsewhere in this Code. EXCEPTIONS [SAC] 1. When the obligation has been substantially performed in good EXTINGUISHMENT OF OBLIGATIONS (PaL C3 NARF Pre) faith. 1. Payment or performance REASON: In the case of substantial performance, the obligee is 2. Loss of the thing due benefited. 3. Condonation or remission 2. When the obligee accepts the performance, knowing its 4. Confusion or merger incompleteness or irregularity, and without expressing any protest 5. Compensation or objection. 6. Novation REASON: Base on the principle of estoppels. 7. Annulment 3. When the obligation to give, to do or not to do is converted into an 8. Rescission obligation to indemnify the obligee or creditor because of breach 9. Fulfillment of resolutory condition or non-fulfillment. 10. Prescription NOTE: For payment to properly exist, the creditor has to accept the same, OTHER FORMS OF EXTINGUISHMENT (FC - MAID) expressly or implicitly. Payment, for valid reasons, may properly be rejected. 1. Happening of fortuitous event (Art. 1174) 2. Compromise (Art. 2028) BURDEN OF PROVING PAYMENT 3. Mutual desistance or withdrawal GENERAL RULE 4. Arrival of resolutory period (Art. 1193, par. 2) Debtor has the burden of showing with legal certainty that the 5. Impossibility of fulfillment of condition (Art 1266) obligation has been discharged by payment. 6. Death, for personal or intransmissible obligation. (Art. 1311 par. 1) EXCEPTION When the debtor introduces evidences that the obligation has been Illustration of Death: extinguished, the burden shifts to the creditor. On 1 Jan 2017, A promised to B the amount of P5M to be paid on 31 3 Dec. 2018. On 1 June 2017, A died leaving X as the only heir. REQUISITES OF PAYMENT [I FCM] B cannot compel X to pay the debt of his father for Art. 1178 states that 1. Identity – only the prestation agreed upon and no other must be only rights shall be transmissible, obligation not included. complied with; 2. Integrity/Completeness – the thing or service must be completely delivered or rendered; 3. Intention – the debtor must have the intention to fulfill the obligation; S E C T I O N 1 4. Free and voluntary fulfilled. PAYMENT OR PERFORMANCE 5. The debtor and creditor must have the capacity to give and receive the payment respectively; 6. Must be made by the proper payor to proper payee. ART. 1232 KINDS OF PAYMENT Payment means not only the delivery of money but also the 1. Normal – when the debtor voluntarily performs or pays performance, in any other manner, of an obligation. 2. Abnormal – the debtor is forced by means of a judicial proceeding either to comply with the prestation or pay indemnity. CONCEPT OF PAYMENT AND PERFORMANCE It consists in the normal and voluntary fulfillment of the obligation by PRINCIPLE OF INTEGRITY/COMPLETENESS OF PAYMENT the realization of the purposes for which it was constituted. For debt to have been paid, the thing or service in which the obligation consists must have been completely delivered or rendered, as the case may be. ART. 1233 A debt shall not be understood to have been paid unless the thing or REQUISITES service in which the obligation consists has been completely delivered or 1. The very thing or service contemplated must be paid; rendered, as the case may be. 2. Fulfillment must be complete. HOW PAYMENT IS MADE DEBT PAYMENT ART. 1234 If the obligation has been substantially performed in good faith, the Monetary Delivery of money. The amount obligor may recover as though there had been strict and complete paid must be full, unless otherwise fulfillment, less damages suffered by the obligee. stipulated in the contract. To give Delivery of the thing/s To do Performance of the personal www.arete.site123.me Page 1 undertaking. GENERAL RULE Not to do Refraining from doing the action. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation. EXCEPTION ART. 1236 Unless there is a stipulation to the contrary. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, REASON unless there is a stipulation to the contrary. The creditor should have the right to insist on the liability of the debtor. Whoever pays for another may demand from the debtor what he The creditor should not be compelled to accept payment from a third person has paid, except that if he paid without the knowledge or against the will whom he may dislike or distrust. He may not desire to have any business of the debtor, he can recover only insofar as the payment has been dealings with a third person; or the creditor may not have confidence in the beneficial to the debtor. honesty of the third person who might deliver a defective thing or pay with a check which may not be honoured. NOTE In case the third person acquired the consent of the debtor, there arise a new juridical relationship between the debtor and the third person. EFFECTS OF PAYMENT 1. Third person is entitled to full reimbursement; NOTE Extinguishment of the principal obligation gives rise to 2. There is legal subrogation as the third person, i.e., steps into the extinguishment of the accessory obligation such as mortgage, surety, and shoes of the creditor. guarantee. NOTE The creditor may refuse to accept payment. ART. 1237 THIRD PERSON, NOT INTERESTED AND WITHOUT CONSENT Whoever pays on behalf of the debtor without the knowledge or GENERAL RULE against the will of the latter, cannot compel the creditor to subrogate him Whoever pays for another may demand from the debtor what he has in his rights, such as those arising from a mortgage, guaranty, or paid. penalty. EXCEPTION NOTE Whether or not a third person secured the consent of the debtor, If payment was made without the knowledge or against the will of the the obligation with respect to the creditor is validly extinguished. debtor. In such case, he can only recover insofar as the payment has been beneficial to the debtor, also known as beneficial reimbursement. EFFECT OF PAYMENT ART. 1238 Third person can only be reimbursed insofar as payment has been Payment made by a third person who does not intend to be beneficial to the debtor. reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor Illustration: who has accepted it. A owes P5M to B payable on 31 Dec. 2018. C, the father of A, went to B and said, “compañero, I’m going to pay na yung debt ng magaling ko na NOTE If a third person intends to pay the debtor’s obligation as a son.” Is B compelled to accept the same? donation without securing first the debtor’s consent, the third person shall No. C, though he may be the father of A, is not an interested party in have the right for reimbursement. the fulfillment of the obligation for he is not a party to the contract. NOTE A third person who intends to pay the debtor’s obligation must Some instances wherein a third person can pay the obligation of the debtor: secure the debtor’s consent (Art. 734) in order to eradicate the sense of In Arts. 94, 121, 146 of the Family Code. obligation on the part of the debtor to return the favour owed to the third person (to avoid the so called “utang na loob”). SUBROGATION The person who pays for the debtor is put into the shoes of the creditor NOTE If the value of the donation is P5,000 or less, the donation may be thereby acquiring not only the right to be reimbursed for what he has paid but made either orally or in writing. Should the donation exceed P5,000, the also all other rights which the creditor could have exercised pertaining to the donation must be written in public or private document (see Art. 748). credit either against the debtor or against the third persons, be they guarantors or possessors of mortgages. PERSON WHO MAY PAY THE OBLIGATION Only applies when the payment by a third person is with the knowledge 1. Debtor himself of the debtor. 2. His legal representative 3. Any third person interested in the fulfillment of obligation. SUBROGATION REIMBURSEMENT Third person is entitled to demand A simple personal action available to NOTE The rule on the third person does not apply in case a third person reimbursement and exercise all the the third person or payor against the who pays the redemption price in sales with right of repurchase (pacto de rights which the creditor could have debtor to recover from the latter retro) because the vendor a retro is not a debtor within the meaning of the exercised against the debtor and what he has paid insofar as the law.