Aliñ o, Hannah Marie M.

March 11, 2022

BSMAC 1- D The Law on Obligations and Contracts

Study Guide No. 4

Chapter 4 – Extinguishment of Obligations

I. True or False. Explain briefly your answer citing the legal basis.

1.  The law provides that the delivery of checks “shall produce the effects of payment only
when they have been deposited.”

True. According to Article 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered or rendered,
as the case may be.

2.  The rule is that the creditor is bound to accept payment by a third person who has no
interest in the fulfilling of the obligation.

False. According to 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)

3.  In dacion en pago, the debtor offers cash to the creditor who accepts it as the equivalent of
payment of outstanding debt.

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of an existing obligation. It is a
special mode of payment where the debtor offers another thing to the creditor who accepts
it as equivalent to the payment of an outstanding debt.

4.  Dacion en pago partakes of a nature of a contract of sale, where the thing offered by the
debtor is the object of the contract, while the debt is the purchase of price.

In its modern concept, what actually takes place in dacion en pago is an objective novation
of the obligation where the thing offered as an accepted equivalent of the performance of an
obligation is considered as the object of the contract of sale, while the debt is considered as
the purchase price. 

5.  The extrajudicial expenses required by the payment shall be for the account of the creditor.
 False. According to Article 1257. Unless otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With regard to judicial
cost, the Rules of Court shall govern. (1168a)

6.  As a general rule, a check constitutes a legal tender, but a creditor may validly refuse it.

True. A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor.

7.  In case of extraordinary inflation or deflation, the value of the currency at the time of the
establishment if the obligation shall be the basis for the payment when no agreement to the
contrary is stipulated, has strict application only to contractual obligations.

True. According to Article 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.

8.  A contractual agreement is not needed for the effects of extraordinary inflation to be taken
into account to alter the value of the currency.

False. A contractual agreement is needed for the effects of extraordinary inflation to

be taken into account to alter the value of the currency.

According to Article 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.

9.  In dacion en pago, the debtor is in the state of partial or relative insolvency.

True. Unless there is a stipulation to the contrary, the assignment does not make the
creditors the owners of the property of the debtor and the debtor is released from his
obligation only up to the net proceeds of the sale of the property assigned. (Art. 1255.) In
other words, the debtor is still liable if there is a balance.

Article 1255 refers to contractual assignment. The assignment of property under Article
1255 refers to voluntary or contractual assignment which requires the consent of all the
creditors as distinguished from legal or judicial assignment which is governed by the
Insolvency Law. (Sec. 8, Act No. 1956, as amended.)

10.  In dacion en pago, what is delivered by the debtor is merely a thing to be considered as the
equivalent of the performance of the obligation.

True. Dacion en pago is the delivery and transmission of ownership of a thing by the

debtor to the creditor as an accepted equivalent of the performance of an existing
obligation.
11.  The general rule is that the burden rests on the defendant to prove payment.

True. Even where the plaintiff must allege non-payment, the general rule is that the burden
rests on the defendant to prove payment, rather than on the plaintiff to prove non-
payment. The debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment.

12.  The rule is that a receipt of payment is the best evidence of the fact of payment.

True. The ruling in PNB v. Court of Appeals is that while a receipt of payment is the best
evidence of the fact of payment, it is, however, not conclusive but merely presumptive;
neither it is exclusive evidence as the fact of payment may be established also by parole
evidence.

13.  As a rule, payment by an incapacitated person is valid.

False. As a general rule, payment made to an incapacitated person is not valid. It is,
nevertheless, valid if the incapacitated person to whom the payment was made kept the
thing delivered and valid only to the extent where the delivery redounded to his benefit.

14.  Payment to a person who is incapacitated to administer his property shall not be valid if he
has kept the thing delivered, or insofar as the payment has been beneficial to him.

True. According to Article 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as the payment has been
beneficial to him.

Payment made to a third person shall be also 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) 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)

15.  Payment made in good faith to any person in possession of the credit shall release the
debtor. 

True. According to Article 1242. Payment made in good faith to any person in possesion of
the credit shall release the debtor.

16. As a general rule, payment shall be made in the place of business of the debtor

True. Payment may be made by a debtor personally or by a duly authorized agent on

the debtor's behalf. Similarly, payment may be made to the creditor personally or to an
agent of the creditor, provided that such agent has authority to receive payment.
 17.  The debtor’s right to apply payment is mandatory.

True. According to Article 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. 

18.  The debtor’s right to apply payment cannot be waived.

False. 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.

19.  In case the debtor does not make the application of payment nor the creditor does not also
state in which application of payment is made, then application is made by operation of law.

True. While the Civil Code gives to the debtor the right to provide for the application of
payments where he has various debts of the same kind in favor of one and the same
creditor, which right must be exercised at the time he effects the payment (Art. 1252), in the
absence or failure of the debtor to exercise such right, the creditor is empowered to make
the application of the payments made by the debtor as he deems it fit.

20.  In payment by cession, the debtor is not necessarily in a state of financial difficulty. 

False. Dation in payment (Dacion en pago) where a property is alienated by the debtor to

the creditor in satisfaction of a debt in money. The law on sales shall govern dation in
payment. (Art. 1245) In dacion en pago, the debtor is not necessarily in a state of financial
difficulty.

II. True or False. Explain briefly your answer citing the legal basis.

1.  Without the notice first announced to the persons interested in the fulfilment of the
obligation, the consignation as a payment is voidable.
 True. 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
provisions which regulate payment. (1177)

2.  The fact that in previous year’s payment in check was accepted will place its creditor in
estoppel from requiring the debtor to pay his obligation in cash.

False. The check intended to pay a debt, if refused by obligee or creditor, is not a valid
tender of payment.  The fact that in previous years payment in check by the debtor was
accepted by the creditor does not place the latter in estoppel to prevent him from requiring
the former to pay his obligation in cash.  If such check  refused by the creditor is not a valid
tender of payment, its consignation in court does not render it legal, valid and effective.

3.  Payment in check by the debtor may be acceptable as valid, if no prompt objection to said
payment is made.

True. As explained in the G.R. No. 156846, Payment in check by the debtor may be
acceptable as valid if no prompt objection to said payment is made.
Consequently, petitioner's tender of payment in the form of manager's check is valid.

4.  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.

True. 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.

5.  An obligation to pay money is generic; therefore, it is excused by fortuitous loss of any
specific property of the debtor.

False. Under Article 1263 of the Civil Code, "In an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not extinguish the obligation." If the
obligation is generic in the sense that the object thereof is designated merely by its class or
genus without any particular designation or physical segregation from all others of the
same class, the loss or destruction of anything of the same kind even without the debtor's
fault and before he has incurred in delay will not have the effect of extinguishing the
obligation. This rule is based on the principle that the genus of a thing can never perish.
Genus nunquan perit. An obligation to pay money is generic; therefore, it is not
excused by fortuitous loss of any specific property of the debtor.

6.  The delivery of a public document evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action which the former had against the latter.
 False. According to Article 1271. The delivery of a private document evidencing a credit,
made voluntarily by the creditor to the debtor, implies that the renunciation of the action
which the former had against the latter.

If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his
heirs may uphold it by proving that the delivery of the document was made in virtue of
payment of the debt. (1188)

7.  The rationale for allowing the presumption of renunciation in the delivery of a public
instrument is that, unlike that of a private instrument, there could be just one copy of the
evidence of credit.

False. Because as explained in G.R. No. 109172, the rationale for allowing the presumption
of renunciation in the delivery of a private instrument is that, unlike that of a public
instrument, there could be just one copy of the evidence of credit.

8.  The renunciation of the principal debt shall not extinguish the accessory obligations.

False. According to Article 1273. The renunciation of the principal debt shall extinguish
the accessory obligations; but the waiver of the latter shall leave the former in force.
(1190)

9.  If the confusion takes place in the person of any of the guarantors, there is extinguishment
of the principal obligation.

False. According to Article 1276. Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors. Confusion which takes place in the person of
any of the latter does not extinguish the obligation.

10.  In a joint obligation, if the confusion takes place in one of the joint debtors, the principal
obligation is entirely extinguished.

False. According to Article 1277. Confusion does not extinguish a joint obligation except
as regards the share corresponding to the creditor or debtor in whom the two characters
concur.

11.  In payment by cession, what is ceded by the debtor is the universality of all his property.

True. Payment by cession (assignment) where the debtor abandons all his property for the
benefit of his creditors in order that from the proceeds thereof the latter may obtain
payment of their credits. In assignment, the debtor is in a state of partial or relative
insolvency.

12.  Tender of payment may be judicial, while consignation is necessarily extrajudicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation.
 False. As explained in the G.R. No. 169501. Tender of payment may be extrajudicial,
while consignation is necessarily judicial, and the priority of the first is the attempt to
make a private settlement before proceeding to the solemnities of consignation.
Tender and consignation, where validly made, produces the effect of payment and
extinguishes the obligation.

13.  There should be notice to the creditor only after consignation as required by the Civil Code

True. There should be notice to the creditor prior and after consignation as required by the
Civil Code. The reason for this is obvious, namely, to enable the creditor to withdraw the
goods or money deposited.

14.  The rationale for consignation is to avoid the performance of an obligation becoming more
onerous to the debtor by reason of cause not imputable to him.

True. Because as explained in the G.D. No. 136409, The rationale for consignation is to
avoid the performance of an obligation becoming more onerous to the debtor by
reason of causes not imputable to him. Petitioners claim that they made a written tender
of payment and actually prepared vouchers for their monthly rentals.

15.  Tender of payment is not the antecedent of consignation.

False. As explained in the G.R. No. 171298, Tender of payment must be distinguished from
consignation. Tender is the antecedent of consignation, that is, an act preparatory to the
consignation, which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain.

16.  Where the obligation consists in the payment of the money, the failure of the debtor to
make the payment even by the reason of a fortuitous event shall not relieve him of his
liability.

True. As explained in the G.R. No. 147839, As correctly stated by the CA, where the
obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability.

17.  If the thing is lost by the while in the possession of the debtor, it shall be conclusively
presumed that the loss was due to his fault.

True. Whenever the thing should be lost, when in the possession of the debtor, it shall be
presumed that the loss occurred by his fault and not by a fortuitous event, unless there is
proof to the contrary and without prejudice to the provisions of article 1096. 

18.  Bad faith imports a dishonest purpose and conscious doing of wrong.

True. As explained in G.R. No. 198842, Bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a
 wrong, a breach of known duty through some motive or interest or ill will that
partakes of the nature of fraud.

19.  Bad faith is presumed.

True. Malice or bad faith is at the core of Article 19 of the Civil Code. Good faith refers to the
state of mind which is manifested by the acts of the individual concerned, and is presumed.
Bad faith, which involves a dishonest purpose or some moral obloquy and conscious
doing of a wrong, must therefore be proved.

20.  The donation and acceptance of a movable, the value of which exceeds Php 5,000,000 must
be made in writing, otherwise the same shall be voidable.

True. According to Article 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the document
representing the right donated.

If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing, otherwise, the donation shall
be void. (632a)

III. True or False. Explain briefly your answer citing the legal basis.

1.  The relationship of the depositors and the Bank or similar institution is that of the creditor-
debtor. Such deposit may be set-off against the obligation of the depositor with the bank or
similar institution.

True. The contract between the bank and its depositor is governed by the provisions of the
Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that "x x x
savings x x x deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan." There is a debtor-creditor relationship between the
bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.

2.  Compensation takes place where one claim is still the subject of litigation.

False. Legal compensation cannot take place as the requirement that the debts must be
liquidated and demandable is not present. One of the debts is not yet liquidated for there
is a running interest still to be paid thereon.

3.  A claim is liquidate when the amount and time of payment is fixed.

False. Damages can only be liquidated if the injury suffered by one of the parties is
unclear or not easily quantifiable. The amount of liquidated damage must be reasonable,
 and should be based on the following factors: The harm, whether real or expected, caused
by the breaching of the contract.

4.  A debt is an amount actually ascertained.

True. As explained in G.R. No. L-14027, A debt is an amount actually ascertained. That there
must be an ascertained debt and not a mere unliquidated demand or liability, "is sustained
by all the case, legal and equitable." 

5.  A claim is a debt in embryo. It is mere evidence of a debt and must pass thru a process
prescribed by law before it develops into what is properly called a debt.

True. As explained in G.R. No. 120236, A claim, on the other hand, is a debt in embryo. It is
mere evidence of a debt and must pass thru the process prescribed by law before it
develops into what is properly called a debt.

6.  Compensation may be total or partial. When the two debts are of the same amount, there is
a partial compensation.

False. Partial Compensation is when the debts to be compensated are not equal in
amount.

7.  Compensation shall be proper when one of the debts arises from a depositum or from the
obligations of a depository or of a bailee in commodatum.

False. Compensation shall not be proper when one of the debts arises from a
depositum or from the obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support due by
gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a)

8.  Novation is never presumed, and the animus novandi, must appear by express agreement of
the parties, or by their acts that are too clear and unmistakable.

True. As explained in G.R. No. 162826, Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by express agreement of the parties, or
by their acts that are too unequivocal to be mistaken.

9.  The will to novate must appear by express agreement of the parties, or by their acts which
are too clear or unequivocal to be mistaken.

True. As explained in G.R. No. 162826, Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken.

10.  When the principal obligation is extinguished in consequence of a novation, the accessory
obligations are not extinguished.
 False. Article 1296 When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they may benefit third persons
who did not give their consent. (1207)

11.  In a solidary obligation, if the confusion takes place in one of the solidary debtors, the
entire obligation is extinguished.

True. Confusion in a solidary obligation Merger in the person of one of the solidary debtors
shall extinguish the entire obligation because it is also a merger in the other solidary
debtors.

12.  In compensation, there must be two persons, who, in their own right, are creditors and
debtors of each other.

True. Compensation shall take place when 2 persons, in their own right, are creditors and
debtors of each other. (Art. 1278) In order that compensation may be proper, it is necessary
that:

a. Each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other.
b. Both debts consists in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality; if the latter has been stated.
c. The two debts be due.
d. They be liquidated and demandable.
e. Over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (Art. 1279)

13.  In confusion, there are two persons in whom is merged the qualities of creditor and debtor.

True. Under Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.

14.  In compensation, there must be at least two obligations.

True. Compensation shall take place when 2 persons, in their own right, are creditors and
debtors of each other. (Art. 1278) In order that compensation may be proper, it is necessary
that:

a. Each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other.
b. Both debts consists in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality; if the latter has been stated.
c. The two debts be due.
d. They be liquidated and demandable.
e. Over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (Art. 1279)
15.  Conventional compensation occurs when the parties agree to the mutual extinguishment of
their credits or to compensate their mutual obligations even in the absence of some of the
legal requisites.

True. Conventional compensation is the one that arises from the will of the parties,
without the need for the requirements demanded by law exposed in the previous point.
However, it cannot be valid if there is a legal provision that in any case excludes it.

16.  Neither can compensation be set up against a creditor who has a claim for support due by a
gratuitous title.

True. According to Article 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a bailee in
commodatum.

Neither can compensation be set tup against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article
301.

17.  Debts can be compensated in one of the debts consist in civil liability arising from a penal
offense.

True. Article 1288. Neither shall there be compensation if one of the debts consist in civil
liability arising from a penal offense.

18.  As a general rule, no form of words or writing is necessary to give effect to a novation.

True. As a general rule, no form of words or writing is necessary to give effect to a

novation. Nevertheless, where either or both parties involved are juridical entities, proof
that the second contract was executed by persons with the proper authority to bind their
respective principals is necessary.

19.  Novation is disputably presumed.

False. Novation is a contract the object of which is: either to extinguished an existing
obligation and to substitute a new one in its place; or to discharge an old debtor and
substitute a new one to him; or to substitute a new creditor to an old creditor with regard to
whom the debtor is discharged. It is never presumed.

20.  In its modern concept, what actually takes place in dacion en pago is an objective novation
of the obligation.

True. As explained in G.R. No. 173856. In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the purchase price.