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Obligations are extinguished: 1. Debtor
(1) By payment or performance; 2. Any person who has an interest in the obligation.
(2) By the loss of the thing due; 3. Third person who has no interest in the
(3) By the condonation or remission of the debt; obligation when there is stipulation he can make
(4) By the confusion or merger of the rights of payment.
creditor and debtor;
(5) By compensation; Creditor may refuse payment by a third person
(6) By novation. Creditor should have a right to insist on the
Other causes of extinguishment of obligation, liability on the debtor unlike before; the creditor
such as annulment, rescission, fulfillment of a cannot refuse payment made by the third
resolutory condition, and prescription, are governed person.
elsewhere in this Code. Creditor is also not compelled to accept
payment by a third person whom he dislikes. The
Other causes of extinguishment of obligations creditor may not desire to have any dealings
(1) Death of a party in case the obligation is a with the third person.
personal one. ** The creditor is only making sure, thats why
(2) Mutual desistance or withdrawal. he may not accept payment from a third person.
(3) Arrival of resolutory period.
(4) Compromise Effect of Payment by third person
(5) Impossibility of fulfillment. 1. If made without the knowledge or against the
(6) Happening of a fortuitous event. will of the debtor.
2. If made with the knowledge of the debtor.
Payment or Performance
Meaning of payment: Right of third person to subrogation
Ordinary Parlance: It refers only to the delivery of Whoever pays in behalf of debtor is entitles to
money. subrogation, if payment is with consent of latter.
In legal mode: Payment may consist of not only in the If payment is without knowledge or against will
delivery of money but also the giving of a thing, the of debtor then third person cannot compel
doing of an act, or not doing of an act. creditor to subrogate him in the latters
accessory rights of mortgage, guaranty, or
When debt is considered paid penalty.
(1) Integrity of prestation Subrogation can only take place with debtors
(2) Identity of prestation consent.
Third person who without necessity paid under
Exception to the rule under Article 1233 such condition is protected by his right to
1. Article 1234, because: reimbursement.
It is adopted from American Law.
In case of substantial performance, the Subrogation and Reimbursement Distingushed
obligee is benefited. Subrogation Reimbursement
Obligor should be allowed to recover as if Person who pays Third person
there had been a strict and complete for debtor is put entitled by reason
fulfillment less damages suffered by the into shoes of of payment has
oblige. creditor. merely the bare
Compensation for breach committed by the Payor acquires not right to be
obligor. only right to refunded, this is
Requisites: reimburse what he without right to the
a. There must be substantial performance. has paid but also all guarantees and
b. The obligor must be in good faith. other rights securities of
2. Article 1235. It is also founded on the principle creditor could have original obligation.
of estroppel. exercised.
If payment irregular or complete, creditor may There is no real
reject. extinction of
If creditor accepts, the right must be waived, obligation, only
then the obligation is extinguished. change of creditor
Requisites
a. The obligee knows that the performance is Payment by a third person who doesnt intend to be
incomplete or irregular. reimbursed
b. He accepts the performance without **No one should be compelled to accept the
expressing any protest or objection. generosity of another. If paying the third person
does not intend to reimburse then the payment is
made into a donation which requires the debtors Payment to third person in possession of credit
consent to be valid. However if creditor accepts This refers to the possession of credit itself.
payment, it will be also considered as a donation Mere possession of instrument does not entitle
even without consent of the debtor. holder to payment.
Payment does not release the debtor
Meaning of free disposal of thing due and Payor must act in good faith.
capacity to alienate
Free disposal of thing due thing to be delivered When payment to creditor not valid
must not be subject to any claim, lien or In action against debtor that is the creditor of
encumbrance of a third person. another, the debtor-stranger may be ordered by
court to retain the debt until right of plaintiff,
Capacity to alienate person is not incapacitated to the creditor is main litigation is resolved.
enter into contracts and to make the disposal of a Payment made by debtor-stranger shall be
thing due. invalid id plaintiff wins case and cannot collect
from debtor to whom payment is made.
Free Disposal of thing due and capacity to alienate
required Very prestation due must be complied with
In obligation to give, payment by one who 1st paragraph refers to a real obligation to deliver
doesnt have the free disposition of a free thing specific thing. A thing different from what is due
due and capacity to alienate is not valid (paid cannot be demanded against will of debtor or
thing can be recovered). creditor.
2nd refers to personal obligation. Act to be
Person to whom payment shall be made performed or prohibited cant substituted
1. Creditor or oblige against obligees will.
2. His successor in interest
3. Any person authorized to receive it When prestation may be substituted
** Creditor referred to must be the creditor at Substitution can happen if oblige consents
time of payment not at time of constitution of Facultative obligation debtor is given right to
obligation. render another prestation in substitution
Article 1244 will not apply in case of waiver by
Effect of Payment to an incapacitated person
creditor or substitution is allowed with consent
Payment to a person unable to manage his of creditor.
property is not valid unless such incapacitated
person kept the thing paid or delivered, or it was Special forms of payment
benefited by payment. 1. Dation in payment is conveyance of ownership
In absence of benefit, debtor may be made to of a thing as an accepted equivalent of
pay again by the creditors performance. It is not an ordinary way of
guardian/incapacitated person himself. extinguishing obligation. An existing debt in
Proof of benefit is obligatory upon debtor who money is satisfied not by payment of money but
paid. alienation of property.
2. Application of payments
Effect of Payment to third person 3. Payment be cession
Payment to third person or wrong party is not 4. Tender of payment and consignation
valid unless it was redounded to benefit of
creditor. Governing law
The payment made by debtor to third person Law on sales governs because dation in payment
benefited by creditor is no presumed and must may be considered specie of sale: amount of the
be established by person in proving this fact. money due becomes price of thing alienated.
In absence of proof, payment thereof in error
and in good faith will not deprive creditor to Rule of the medium quantity
demand payment. If to deliver a specific thing, thing itself should be
delivered.
When benefit to creditor need not be proved by If its to deliver a generic thing, purpose of
debtor obligation and other circumstances will be taken
1. Subrogation of payer in creditors rights. into consideration to determine quality of thing
2. Ratification by creditor. to be delivered.
3. Estoppel on part of creditor admission is If there has been disagreement by the parties
representation is rendered conclusive upon regarding precise declaration in obligation or
person making it and cannot be denied as finding one thing exactly like the other, law steps
against person relying thereon. in.
Benefit of article may be waived by creditor if he and in those amounts not exceeding Php 20 for
accepted thing of inferior quality. denominations Php 0.10 or less.
Benefit of article may be waived by debtor if he All coins and bills above Php 1 are valid for
delivered thing of superior quality. tenders of any amount.