Business Law

(Obligations &
Contracts)
ATTY. REX ANTONIO C. REDIANG, JR.
TTH
 EXTINGUISHMENT OF OBLIGATION

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 and debtor;
(5) By compensation;
(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)
#1
Payment-
Arts 1232
to 1261
 Important Questions to ask..

1. Should payment ALWAYS be by money? In what currency?

2. What is Cession? Can I pay with my property?
3. What is Dacion en Pago?
4. Can somebody pay for me? Will they automatically get my rights in that
case?
5. If I have to pay both principal and interest which should come first?
6. Where should I pay?
7. I want to pay but the creditor does not want to accept the payment, what
to do?
 Payment should always be by Money?

No.
It could be by other means like property or
transfer of rights.
That is why the Section deals with Payment or
Performance.
 Can I pay my
debt by
rendering
Service?
1.Transaction could be immoral or
illegal

2. Prohibition against involuntary

servitude (Section 18 (2) Art III Phil
Constitution)
Cession Art 1255
- Debtor can pay off his creditors (at
least 2) with his property if he is
insolvent (even partially)
Property will be sold and debts have
to be paid ,if there are amounts
remaining, it will be returned to the
debtor.
Dation

(DACION
EN PAGO)

Art 1245
“Collateral”
Should it be automatic?

No, the creditor has to apply for Foreclosure in court.

What if there was an agreement saying if I cannot pay,
my property is automatically be theirs. Is this allowed?

No, this type of provision is proscribed (not allowed)

because it falls into what we call
”Pactum Commisorium”
Can somebody
pay in my
behalf?

What is the
effect?
 Yes, someone can pay in your behalf.

The effect will be depending upon your agreement or lack of agreement with the
person paying.

If the agreement says he will be substituted in your behalf, he will be the new
debtor in the eyes of the creditor.

If you agreed that he will be subrogated to your rights, he will be.

Subrogation - a third person “stepping in your shoes” as to your rights and

obligations.
 Where should I pay?

In the place designated in the agreement. If there is no agreement, in a place safe and
accessible to both.

Employees- in the place of employment. (unless payment is by bank)

In what currency should I pay?

Depends on the agreement, if there is none , in whatever

currency that is legal tender in the Philippines.
I want to pay, creditor does
not want to accept my
payment, what should I do?

File an Action for

Consignation in Court,
deposit the payment there.
How much can I pay in coins, legally?

1 peso coin and up 25 centavos and below

Php 1000.00
Php 100
#2 Loss of the thing due
Arts 1262 to 1269

2 Important things to consider

a. The loss is not the fault of the

creditor

b. The loss, even if partial, makes the

performance of the obligation
impossible. (not just hard)
#3 Condonation or Remission of the Debt
Arts 1270 to 1274

Important things to consider

a. The one condoning and condoned

should have legal capacity

b. The act must not be inofficious

(nasa lugar).
#4 Compensation
Arts 1278 to 1290

Both the Creditor and Debtor becomes

the opposite of each other

It could be total or partial.

(Most litigious in practice)

 If interest and
principal loan
are both due,
which is the
priority?
Interest will be prioritized…
 #5 Novation
Arts 1291 to 1304

A new Obligation or Obligee is created in

exchange of a previous one.
 Other sources of Extinguishment

1.Annulment- void from the beginning

2.Rescission- there is fraud in the contract
3.Resolutory Condition – the prohibited happens
4.Prescription – expiry of actions