Gallego, Lenmariel DC.

1. What are the modes of extinguishing an obligation under the Civil Code?
Article 1231. Obligations are extinguished: (1) by payment or performance; (2) by the
loss of the thing due; (3) by the condonation or remission of the debt; (4) by the confusion or
merger of the rights of creditor or debtor; (5) by compensation; and (6) by novation. Other
causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)

2. What does payment or performance as a mode of extinguishing an obligation mean? 

Explain.
Article 1232. Payment means not only the delivery of money but also the performance, in
any other manner, of an obligation. (n) In other parlance, payment refers only to the delivery
of cash. As a legal mode of extinguishing an obligation, it's a far wider meaning. Payment
may encompass not only within the delivery of cash but also the giving of a thing apart from
money, the doing of an act, or not doing of an act. When a debtor pays damages or penalty in
lieu of the fulfillment of an obligation, there is also payment in the sense used in Article
1232. In law, payment and performance are synonymous.

3. Mr. B bought a refrigerator from Mr. S. A check has been issued as payment.  Has the
obligation been paid and extinguished?  Explain.
The obligation has been paid and extinguished because there is a payment that has been
issued. The parties may, however, agree that payment shall be made in some other way—for
example, by bill of exchange, by promissory note, by check (all of which are commonly
called negotiable instruments), or by electronic funds transfer. Where payment is made by
negotiable instrument, the general rule is that the acceptance of such instrument by the
creditor operates only as a conditional payment. This means that if the instrument is
subsequently dishonoured, the debt revives, and the creditor may sue either on the instrument
or on the original debt. The parties may, however, agree that acceptance of a negotiable
instrument shall operate as an absolute payment, in which case, if the instrument is
dishonoured, the creditor may sue on the instrument but not on the original debt.

4. May a third person compel the creditor to accept payment or performance of an

obligation?  Is there an exception to the general rule?  Explain.
Article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a stipulation to
the contrary. Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor. (1158a) the creditor is bound to
accept payment or performance from the following: (1) the debtor; (2) any person who has an
Gallego, Lenmariel DC.

interest in the obligation (like a guarantor); or (3) a third person who has no interest in the
obligation when there is stipulation that he can make payment. Creditor may refuse payment
by a third person. “Under the old Civil Code, the creditor cannot refuse payment by a third
person but the Commission believes that the creditor should have a right to insist on the
liability of the debtor. Moreover, the creditor should not be compelled to accept payment
from a third person whom he may dislike or distrust. The creditor may not, for personal
reasons, desire to have any business dealings with a third person; or the creditor may not
have confidence in the dishonesty of the third person who might deliver a defective thing or
pay with a check which may not be honored.”

5. What are the different special modes of payment?  Explain each.

There are four special forms of payments under the Civil Code, namely: (1) dation in
payment. According to Article 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; (2)
application of payments. According to Article 1253. If the debt produces interest, payment of
the principal shall not be deemed to have been made until the interests have been covered; (3)
payment by cession. According to Article 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; and (4) tender of payment and
consignation. According to Article 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. According to Article 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 provision which regulate the payment.
According to Article 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. According to Article 1259. The
expense of consignation, when properly made, shall be charged against the creditor.
According to Article 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 the 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. According to Article 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.
Gallego, Lenmariel DC.

6.  What are the essential requisites of application of payment?

The requisites of application of payments are: (1) there must be one debtor and one
creditor; (2) there must be two or more debts; (3) the debts must be of the same kind; (4) the
debts to which payment made by the debtor has been applied must be due; and (5) the
payment made must not be sufficient to cover all the debts.

7. Distinguish between CESSION vs. DATION IN PAYMENT (Dacion en pago).

The differences are: (1) In dation, there is usually only one creditor, while in cession,
there are several creditors; (2) dation does not presuppose the insolvency of the debtor, while
in cession, the debtor is insolvent at the time of assignment; (3) dation does not involve all
the property of the debtor, while cession extends to all the property of the debtor subject to
execution; (4) in the dation, the creditor becomes the owner of the thing given by the debtor,
while the cession, the creditors only acquire the right to sell the thing and apply the proceeds
to their credits proportionately; and (5) dation is really an act of novation, while the cession
is not an act of novation. Both are substitute forms of payment or performance.

8. What is meant by tender of payment?

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 things or money to be
delivered at the time of the offer.

9. What is consignation?
Consignation is the act of depositing the thing or amount due with the proper court when
the creditor does not desire or cannot receive it, after complying with the formalities required
by law. Consignation is applicable when there is a debt or an obligation to pay. It is always
judicial and it generally requires a prior tender of payment which is, by its very nature,
extrajudicial.

10.  Ms. D owes Ms. C P50,000.00.  When the debt became due, Ms. D delivered to Ms. C
a diamond ring worth P40,000.  Has obligation been extinguished?
The obligation has been extinguished because it is tender of payment that Ms. D
delivered a diamond ring but Ms. D must show that she has in her possession the things to be
delivered at the time of the offer. Ms. C can refuse to accept the diamond ring without any
justifiable reason.