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Extinguishment of Obligation

Case Study

In partial fulfillment of the requirements for Law 101 Course in BS Accountancy


Aragones, Jamie Rose S.

Bautista, Mikki O.

Besana, Rommel

Decena, Rona Mae M.

Gesmundo, Rachel P.

May 6, 2019

CASE STUDY: Payment of debts of money; Mercantile documents as means of payment

Belisario vs. Natividad (60 Phil. 156)

March 25, 2016

G.R. No. L-39815 April 28, 1934

EULALIO BELISARIO, plaintiff-appellant, vs.


Jose V. Claravall for appellant.

Jose C. Zulueta for appellee.



It appears from Exhibit A that the plaintiff sold the lands (Nos. 3357 and 3358) to the defendant fo
P37,000, which was duly paid, and the agreement on the part of the grantee to assume an indebtedness
secured by a lien for 4, 500, which was likewise duly paid. The deed bears the date of April 29, 1927.

On the same date the defendant executed and delivered in favor of the plaintiff an option to
repurchase the lands on or before the end of May, 1931, for the sum of P37,000.

On the 28th of May, 1931, the plaintiff tendered to the defendant a check in the sum of P37,000,
drawn by Rosendo Santiago against his account in the Peoples Bank and Trust Company.


Whether or not the checks made would produce the effect of payment.


At the time said check was tendered to the defendant the drawer thereof had on deposit in the said
bank subject to check the sum of P5.85. Even if the check had been good, the defendant was not legally
bound to accept it because such a check does not satisfy the requirements of a legal tender.

Finding no merit in this appeal, the judgment of the court below is affirmed with costs against the

 Identify the debtor and the creditor. And what is the prestation?
The debtor is the plaintiff who sold his land to the defendant which is the creditor. But upon
payment the defendant which is obliged to give amount of money would be the debtor and the
plaintiff or the one who will receive the payment would be the creditor. The former is obliged to
give the land for exchange of money from the latter. However, on the date the defendant executed
and delivers in favor of the plaintiff an option to repurchase the lands on or before the end of May,
1931, for the sum of P37, 000. On the 28th of May, 1931, the plaintiff tendered to the defendant a
check in the sum of P37, 000, drawn by Rosendo Santiago against his account in the Peoples Bank
and Trust Company. Whether or not the checks made would produce the effect of payment.

 What kind, type of obligation?

This type of obligation is resolutory period as the obligation is valid up to the day certain and
terminates upon arrival of the period.
 Verdict (final judgment, damages claimed)

At the time said check was tendered to the defendant the drawer thereof had on deposit in the
said bank subject to check the sum of P5.85. Even if the check had been good, the defendant was
not legally bound to accept it because such a check does not satisfy the requirements of a legal
tender. Finding no merit in this appeal, the judgment of the court below is affirmed with costs against
the appellant.

 Realization from the case (how it affects your life, values learned)
Contracts are binding agreement enforceable through legal proceedings in case the other
party does not comply with his obligation under the agreement. We should think first, before we
enter to a contract. Once we’re in, we are obliged to follow every detail that was agreed upon unless
it was contrary to law, good customs; etc.We should be responsible with our decisions to prevent
misleading on what the agreement says.

Case Study: Application of payment

Case: Powell v. CA (G. R. No.331339), December 27, 1929


RESPONDENT: Philippine National Bank

 PONENTE: What Is The Case?

This is case was filed by Thos N. Powell for specific performance against the Philippine National
Bank with regards to his loan for fertilizers. Powell complains that the sugar cane that was planted on the
land were in questioned because of the purchased made by Severino Aldeguer. That the proper time for the
designation of his debts must be executed at the moment of payment.

 Who is the debtor and creditor?

In the 1st scenario the debtor is Thos N. Powell and the creditor is the Phillippine National Bank
while in the 2nd Scenario, the debtor is Thos N. Powell and the creditor is Severino Aldeguer.

 What is the prestation?

The prestation is a real obligation, Powell is the debtor who has Loan payable to Philippine national
bank and has an obligation to Severino for the purchase of land.


Whether or not there are errors committed by the lower court in its decision?


Article 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare
the time of making the payment, to which one of them the same must applied. Unless the parties so stipulate,
or when the application of payment is made by the party 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 the
receipt in which application of payment is made, the former cannot complain of the same, unless there is a
cause for invalidating the contract. (1172a)

 What kind of obligation?

Resolutory obligation

 HOLDINGS (Verdict)

None, there were no errors based on the pieces of evidence presented by the plaintiff. There is a proper
time for the designation of the debt. It must be made at the moment of the payment. The decision of the
lower court ordering the PNB to pay the sum of P7 926.18 to the plaintiff was correct. Affirmed.

 Realization:

As business minded people, we should consider the quality of the product we buy and sell to the
consumer, as they pay the right amount of money.
Case Study: Dation in Payment

 Wat is the case?

Sy Guiok and Sy Lim secured a loan from Lim Tay in the amount of P40,000. This was secured by a
contract of pledge whereby the former pledged their 300 shares of stock each in Go Fay & Company to the
latter. However, they failed to pay their respective loans. Hence, Lim Tay filed a petition for mandamus
against Go Fay & Company with the SEC praying that an order be issued directing the corporate secretary of
the said corporation to register the stock transfers and issue new certificates in favor of Lim Tay.

Go Fay & Company filed its answer contending that SEC had no jurisdiction to entertain the complaint
on the ground that since Lim Tay was not a stockholder of the company, no intra corporate controversy took
place; and furthermore, that the default of payment of Sy Guiok and Sy Lim did not automatically vest in
Lim Tay the ownership of the pledged shares.

SEC dismissed the complaint. On appeal to the CA, it affirmed SEC’s decision. Hence, this petition for
certiorari with the SC.

 Who is the debtor and creditor?

The debtor are Sy Guiok and Sy Lim while the creditor is Lim Tay

 What is the prestation?

To give a sum of money of 40,000 pesos with a contract of pledge of 300 shares of stock each in Go Fay
& Company.

 What kind types of obligation?

Facultative Obligation


Whether or not SEC had jurisdiction.

 Held

No. The registration of shares in a stockholder’s name, the issuance of stock certificates, and the right to
receive dividends which pertain to the said shares are all rights that flow from ownership. The
determination of whether or not a shareholder is entitled to exercise the above mentioned rights falls within
the jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still
unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts.

In the case at bar, reading into the contract of pledge, the stipulation shows that Lim Tay was merely
authorized to foreclose the pledge upon maturity of the loans, not to own them. Such foreclosure was not
automatic, for it must be done in a public or private sale. Nowhere was it mentioned that he exercised his
right of foreclosure. Hence, his status was still a mere pledgee, and under civil law, this does not entitle him
to ownership of the shares of stock in question.
 Realization:

The debtor must be responsible in the fulfilment of his obligation. The contract or prestation must be
valid to assure the accomplishment of the principal obligation or if the principal obligation was not fulfilled
the equivalent (substitute) thing must also be valid.

Case Study: Payment by Cession

DOLORES A. IGNACIO, Plaintiff-Appellee,

FELISA MARTINEZ and JUAN MARTINEZ, Defendants-Appellants.

 Facts what is the case?

Crispulo Martinez, the deceased husband of Dolores Arce Ignacio, the plaintiff, was the brother of
Felisa Martinez and uncle of Juan Martinez, the defendants. Crispulo Martinez was indebted to his sister in
the sum of P2, 500 for him to pursue his course of studying in secondary instruction and law. To pay for his
debt, he assigned his share of inheritance which is 1/3 of the same to his sister Feliza Matinez. (Crispulo
issued a document and was ratified a notary public on December 22, 1908.) After the former’s death, his
wife wanted to annul the assignment for the reason that it was without consideration.

 Who is the debtor and creditor?

In this case the debtor is Crispulo Martinez and the creditor is Feliza Martinez.

 What is the prestation?

To give the payment by a substitute.

 What kind or type of obligation?

Facultative obligation

 Issue
Whether or not the assignment was valid and authorized

 Held(Verdict)

It having been clearly shown that Crispulo Martinez owed Luciano Lopez and Felisa Martinez the sum
of P2,500, money loaned him while he was in school, and he being of mature age was, in truth and in law,
an assignment by Crispulo of his interest in the property in question to Felisa Martinez and her husband in
payment of his debt. This act is authorized by article 1175 of the Civil Code (now Article 1255 of the Civil

 Realization:
The thing is due must be paid whether you are relatives, because it will be unfair not to do your
obligation to anyone.

Value: be responsible for your loan so that you can pay the very specific thing.
Life: Cherished the treasure given by the family. And love your siblings7

Case Study: Tender of Payment and Consignation


 What is the case?

Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for a
loan. Valencia arranged everything about the loan with the bank. He supplied to the latter the personal data
required for Castro’s loan application. After the bank approved the loan for the amount of P3,000.00, Castro,
accompanied by the Valencia spouses, signed a promissory note corresponding to her loan in favor of the
bank. On the same day, the Valencia spouses obtained from the bank an equal amount of loan for P3,000.00.
They signed another promissory note (Exhibit “2”) corresponding to their loan in favor of the bank and had
Castro affixed thereon her signature as co-maker. Both loans were secured by a real-estate mortgage on
Castro’s house and lot. Later, the sheriff of Manila sent a notice to Castro, saying that her property would be
sold at public auction to satisfy the obligation covering the two promissory notes plus interest and attorney’s

Upon request by Castro and the Valencias and with conformity of the bank, the auction sale was
postponed, but was nevertheless auctioned at a later date. Castro claimed that she is a 70-year old widow
who cannot read and write in English. According to her, she has only finished second grade. She needed
money in the amount of P3,000.00 to invest in the business of the defendant spouses Valencia, who
accompanied her to the bank to secure a loan of P3,000.00. While at the bank, an employee handed to her
several forms already prepared which she was asked to sign, with no one explaining to her the nature and
contents of the documents.

She also alleged that it was only when she received the letter from the sheriff that she learned that the
mortgage contract which was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and
that she was made to sign as co-maker of the promissory note without her being informed. Castro filed a suit
against petitioners contending that thru mistake on her part or fraud on the part of Valencias she was induced
to sign as co-maker of a promissory note and to constitute a mortgage on her house and lot to secure the
questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00
with the court a quo in full payment of her personal loan plus interest. Castro prayed for:

(1)the annulment as far as she is concerned of the promissory note (Exhibit “2”)and mortgage (Exhibit “6”)
insofar as it exceeds P3,000.00; an

(2) for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the
court a quo upon the filing of her complaint.

 Who is debtor and creditor?

The debtor in this case is Castro and the creditor is Rural Bank.
 What Is The Prestation?
Obligation to give

 What Kind Of Obligation?

Facultative obligation

 Issued

Whether or not respondent court correctly affirmed the lower court in declaring the promissory note
(Exhibit 2) invalid insofar as they affect respondent Castro vis-à-vis petitioner bank, and the mortgage
contract (Exhibit 6) valid up to the amount of P3,000.00 only.

 HELD (Verdict)



While the Valencias defrauded Castro by making her sign the promissory note and the mortgage
contract, they also misrepresented to the bank Castro’s personal qualifications in order to secure its consent
to the loan. Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the
Valencias both Castro and the bank committed mistake in giving their consents to the contracts. In other
words, substantial mistake vitiated their consents given. For if Castro had been aware of what she signed and
the bank of the true qualifications of the loan applicants, it is evident that they would not have given their
consents to the contracts

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual.

We cannot declare the promissory note valid between the bank and Castro and the mortgage contract
binding on Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as
they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto, such
may however be invalidated on the ground of substantial mistake mutually committed by them as a
consequence of the fraud and misrepresentation inflicted by the Valencias. Thus, in the case of
Hill vs. Veloso, this Court declared that a contract may be annulled on the ground of vitiated consent if
deceit by a third person, even without connivance or complicity with one of the contracting parties, resulted
in mutual error on the part of the parties to the contract. The fraud particularly averred in the complaint,
having been proven, is deemed sufficient basis for the declaration of the promissory note invalid insofar as it
affects Castro vis-a-vis the bank, and the mortgage contract valid only up to the amount of P3,000.00

 Realization

As a person wanting to have business we should not undergo through process of contrary to law which like
what Castro and Valencia did just to have their business. Apart from that we must not lose our integrity,
especially when people trust us, do not make them feel that the are stupid just because they do not have
enough education on business, and we know that when it is fraud, it is contrary to law.


 What is the case?

Pedro the lessor of the apartment and Juan is the lessee Juan announced to Pedro that he would like to
pay his due thru consignation, so the consignation is accepted by Pedro.

9Case Digest

SOLEDAD SOCO, petitioner,

HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First Instance of Cebu, Branch
XII, Cebu City and REGINO FRANCISCO, JR., respondents.

G.R. No. L-58961 June 28, 1983


Soco and Francisco entered into a contract of lease on January 17, 1973, whereby Soco leased her
commercial building and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P
800.00 for a period of 10 years renewable for another 10 years at the option of the lessee.

It can readily be discerned from Exhibit “A” (from SOCO) that paragraphs 10 and 11 appear to have
been cancelled while in Exhibit “2” (from FRANCISCO) only paragraph 10 has been cancelled. Claiming
that paragraph 11 of the Contract of Lease was in fact not part of the contract because it was cancelled, Soco
filed Civil Case No. R-16261 in the Court of First Instance of Cebu seeking the annulment and/or
reformation of the Contract of Lease.

Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco did not anymore send
her collector for the payment of rentals and at times there were payments made but no receipts were issued.

This situation prompted Francisco to write Soco the letter dated February 7, 1975 which the latter
received. After writing this letter, Francisco sent his payment for rentals by checks issued by the
Commercial Bank and Trust Company. The factual background setting of this case clearly indicates that
soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental
of more than P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under
the Contract of Lease, the latter felt that she was on the losing end of the lease agreement so she tried to look
for ways and means to terminate the contract.

In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco through
her lawyer sent a letter dated November 23, 1978 to Francisco serving notice to the latter ‘to vacate the
premises leased.’

In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that all9payments of
rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the
City Court of Cebu. Despite this explanation, Soco filed this instant case of Illegal Detainer. MTC and RTC
have conflicting findings. The former found that the consignation was valid. RTC reversed and ordered the
eviction of the Francisco.
 Who Is The Debtor And Creditor?

The creditor is Francisco and the creditor is Soco

 What Is The Prestation?

Obligation to give sum of money to pay for rentals. (Real obligation)

 What Kind Or Type Of Obligation?

Resolutory Obligation.

WON there was a valid consignation of payment of the rentals.

 HELD: (Verdict)

In order that consignation may be effective, the debtor must first comply with certain requirements
prescribed by law. We hold that the respondent lessee has utterly failed to prove the following requisites of a
valid consignation:
First, tender of payment of the monthly rentals to the lessor.
Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation.

Therefore, the decision of the Court of First Instance of Cebu, 14th Judicial District, Branch XII is
hereby REVERSED and SET ASIDE, and the derision of the City Court of Cebu, Branch II is hereby
reinstated, with costs in favor of the petitioner.

 Realization:

Pay on time so that we do not have to undergo in such greater expenses when we file a case. Also, on the
part of the creditor being open and realizing what it would cause of his or her refusement.