Chapter 4 Sections 1-4. (Art. 1231-1277).

At the end of this week be able to understand, explain,

identify, differentiate and apply in illustrative cases or problems the following:

1. Discuss the general principles of payment. Be sure to give examples for each principle you
identified.
 When debt is considered paid (3 Characteristics)
1) Integrity of prestation – a debt to deliver a thing (including money) or to render
service is not understood to has been completely delivered or rendered as the
case may be.
Example: D promised to pay C P20,000. D is giving only P19,000. C can refuse to
accept the P19,000 because the fulfillment is not complete.
2) Identity of prestation – the very prestation due must be delivered or performed.
Example: D obliged himself to deliver to C a specific horse. D cannot require C to
accept another horse although it commands a higher price, neither can C
require D to deliver another horse belonging to D although it can be sold only at
a much lower price.
2. What is payment. Discuss each and identify the requisites of the following modes of payment:
(Give example for each mode).
 Payment – in ordinary parlance, payment refers to the deliver of money. As a legal
mode of extinguishing an obligation, payment may consist of not only in the delivery of
money but also the giving of a thing other than money, the doing of an act, or not doing
of an act.
 Four forms of payment
1) Dation in payment
 Requisites of dation in payment.
 They are must be performance of the lieu of payment (Animo
Solvendi) which may consist in the delivery of a corporeal thing
or real right or a credit against the third person
 They are must be some difference between the prestation due
and that which is given in substitution (Aliud Pro alio)
 There must be agreement between the creditor and the debtor
that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due.
Example:
D owes C P20,000. To fulfill the obligation, D with the consent of C,
delivers a piano.
If the piano, however, is worth less than P20,000, the CONVEYANCE
must be deemed to extinguish the obligation to the extent only of the
value agreed upon unless the parties by their agreement have
considered the piano as full payment, in which case, the obligation is
totally extinguished.
2) Application of payment
 Requisites of application of payments.
The requisites are:
 There must be one debtor and one creditor
 There must be two or more debts
 The debts must be of the same kind
 The debts to which payment made by the debtor has been applied must
be due; and
 The payment made must not be sufficient to cover all the debts.
Application as to debts not yet due.

The application of payments as to debts not yet due cannot be made unless:

 There is a stipulation that the debtor may so apply; or

 it is made by the debtor or creditor, as the case may be, for whose
benefit the period has been constituted.
Example:
D owes C as follows:
a) P1,500.00 payable on September 5;
b) P1,200.00 payable on September 20;
c) A specific table worth P2,000.00 to be delivered on September 20; and
d) P1,000.00 payable on October 15.

On September 20, D paid C P1,500.00. D may apply the P1,500.00 to

debt (a), or to debt (b) and (if C does not object) to a portion of debt (a). If D
paid only P1,000.00, he cannot choose to apply his payment to the
P1,500.00 debt because C cannot be compelled to receive partial payment.
D cannot properly apply his payment to debt (c) because it is not of the
same kind. He must deliver the thing agreed upon. Neither can he apply it to
debt (d) which is not yet due unless there is a stipulation to the contrary or
he has the benefit of the period. An application of payment made by the
debtor without objection from the creditor is binding upon the latter. His
acquiescence is equivalent to an agreement and has the force and efficacy
of a contract.

3) Payment by cession
 Requisites of payment by cession.
They are:
 There must be two or more creditors;
 The debtor must be (partially) insolvent;
 The assignment must involve all the properties of the debtor; and
 The cession must be accepted by the creditors.
 Example:

A is indebted to several creditors in the total amount of P5 million. Her assets

are not sufficient to pay all his debts.

With the consent of her creditors, Lori may assign property to them to be sold,
to satisfy their credits. If the net proceeds of the sale amount only to P3 million,
Lori is still liable for the balance of P2 million unless there is a stipulation that
the assignment shall be in full satisfaction of all her debts.

4) Tender of payment and consignation

 Requisites of a valid consignation.
They are:
 Existence of a valid debt which is due.
 Tender of payment by the debtor and refusal without justifiable
reason by the creditor to accept it.
 Previous notice of consignation to persons interested in the
fulfillment of the obligation.
 Consignation of the thing or sum due.
 Subsequent notice of consignation made to the interested parties.

Example:
A borrowed Php 10,000 from B. On the due date of the obligation, A offers to
pay the obligation but B refuses to accept the payment without any justifiable
reason.

In this case, A’s obligation will not be extinguished until he has made a valid
consignation. The refusal by B to accept the offer to pay without just cause will
not have the effect of payment but A will be relieved from payment of any
interest from the date of tender.

In the same example, upon B’s refusal, A then notified B, thus: “I will file a
complaint against you and deposit the money in the proper court of Manila on
May 25, 2019 at 10:00 o’clock a.m., if before that time you do not accept my
payment.” B having refused payment, A went to the proper court, proved to the
clerk of court’s satisfaction that there was valid tender of payment, that B, the
creditor unjustly refused to accept the payment and that, there was a previous
notice of consignation. The clerk accepted the deposit. Thereafter, A gave
notice to B that amount had been deposited in court.

3. Dation in Payment
  Dation in payment (adjudication or dacion en pago) is the conveyance of ownership of a
thing as an accepted equivalent of performance. It is a special form of payment because
it is not the ordinary way of extinguishing an obligation. An existing debt in money is
satisfied, not by payment of money but by the alienation of property.
4. Application of Payments
 Application of payments is the designation of the debt to which should be applied the
payment made by a debtor who has various debts of the same kind in favor of one and
the same creditor.
5. Payment by Cession
 Payment by cession is another special form of payment. It is the assignment or
abandonment of all the properties of the debtor for the benefit of his creditors in order
that the latter may sell the same and apply the proceeds thereof to the satisfaction of
their credits.
6. Tender of Payment and Consignation
 Tender of payment is the act, on the part of the debtor, of offering to the creditor the
thing or amount due. The debtor must show that he has in his possession the thing or
money to be delivered at the time of the offer. It is an act preparatory to consignation,
which is the principal, and from which are derived the immediate consequences which
the debtor desires or seeks to obtain.
 Consignation is the act of depositing the thing or amount due with the proper court
when the creditor does not desire, or refuses to accept payment, or cannot receive it,
after complying with the formalities required by law. It is always judicial and it generally
requires a prior tender of payment which is by its very nature extrajudicial.

7. What is “loss of the thing due” as mode of extinguishing on obligation?

Differentiate the consequences in case of “loss of the thing due” in determinate or
indeterminate thing.
 Loss of the thing due – is a mode of extinguishment of obligation which consists in the
delivery of a determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of
the thing does not extinguish the obligation, and he shall be responsible for damages.
The same rule applies when the nature of the obligation requires the assumption of risk.
 Loss of Determinate Thing
 As a general rule, the loss of a determinate thing extinguishes the obligation.
The following are the exceptions:
a) When the loss is due to the fault of the debtor.
b) When the debtor has incurred in delay.
c) When so provided by law, as when the debtor has promised to deliver
the same thing to two or more persons who do not have the same
interest.
d) When it is stipulated by the parties.
 e) When the nature of the obligation requires the assumption of risk.
f) When the debt proceeds from a criminal offense.
 Loss of Generic Thing or Indeterminate Thing
 An obligation may not be extinguished by the loss of the thing due if such thing
is generic. This is because generic thing never perishes (genus nunquam perit).
The obligation can still perform whereby:
a) the debtor can deliver a thing of the same class/type as the one lost,
which may be of superior quality but not of inferior quality.
b) the creditor can demand a thing of the same class/type as the one lost,
which may be of inferior quality but not of superior quality.
c) An obligation to pay money is also generic.
However, an obligation may be extinguished if the thing due is only limited
generic.
8. What is remission or condonation of the debt?
Discuss and identify the effects or consequences of remission or condonation of indebtedness.
Give examples.
 Condonation or remission – is the gratuitous abandonment by the creditor of his right
against the debtor. It is thus a form of donation.
 A condonation or remission of an obligation requires:
a) It must be gratuitous
b) It must be accepted by the obligor
c) The parties must have capacity
d) It must not be inofficious
e) If made expressly, it must comply with the forms of donations.

A remission shall be proven with very clear and strong evidence, more than
what is required in establishing a payment or performance.

The creditor's unilateral renunciation without the debtor's acceptance may be

legally allowed, but it does remit an obligation since there is no agreement
between the parties.

A remission also applies the accessory follows principal rule. The remission or
renunciation of the principal debt also extinguishes the accessory obligation, but
the renunciation of the accessory would not extinguish the principal.

9. What is confusion or merger? Discuss and identify the principles behind confusion or merger.
Give an illustration for each principle you identified.
 Confusion or Merger – is the meeting in one person of the qualities of creditor and
debtor with the respect to the same obligations.
 Effect of Merger on Guarantors
  “Accessory follows the principal” (the guaranty being considered as the
accessory obligation). The extinguishment of the accessory obligation (guaranty)
does not carry with it that of the principal obligation (debt).
 Effect of Merger in the person of Principal Debtor or Creditor
 Example: A owes B P300,000, guaranteed by C. B assigns his right to D who
assigns her right to E, and E assigns his right to A.
Effect: A’s obligation is extinguished. C is released from her obligation. C, the
guarantor, was benefitted.
 Effect of Merger in the person of Guarantor
 A owes B P300,000, guaranteed by C. B assigns his right to D who assigns her
right to E, and E assigns his right to C.
Effect: A still have to pay C. However, the contract of guaranty is extinguished,
but not A’s obligation to pay the P300, 000. C, as the new creditor can demand
payment from A.