An obligation comes into being to be performed, and its natural end is extinction through the debtor rendering what was undertaken. Commercial life has, however, produced several routes to extinction, some giving the creditor full satisfaction and others ending the bond without the creditor receiving their due. Kuwait Civil Code No. 67 of 1980 regulates these routes precisely, each with different conditions and effects bearing on the fate of security and defences. This article reviews them in practical terms useful to creditors and debtors managing their obligations.
Payment: The Natural Route
Payment is performance of the obligation by rendering the very thing undertaken, and it is the primary route around which the other rules revolve:
- Who may pay: the debtor, their representative, any person with an interest, and even a stranger to the debt without the debtor's knowledge, unless the debtor objects and notifies the creditor of the objection.
- To whom payment is made: to the creditor or their representative. Payment to a person without capacity to receive does not discharge unless the creditor ratifies it or derives benefit from it.
- Subject of payment: payment must be of the very thing due. A creditor cannot be compelled to accept something other than what was undertaken even if of greater value, and the debtor may not split performance without the creditor's consent.
- Time and place: payment falls due at the agreed time, and if none is fixed the obligation is payable immediately. It is made at the agreed place, failing which at the debtor's domicile at the time of payment unless custom provides otherwise.
- Costs: borne by the debtor unless agreement or a provision states otherwise.
Proof of Payment and the Receipt
The most common practical error is paying without adequate documentation and then being pursued again:
- Burden of proof: falls on the party alleging payment. The debtor must prove discharge rather than the creditor proving the debt subsists.
- Receipt: the debtor may demand a written receipt on payment and may withhold payment until one is provided.
- Return of the instrument: where the debt is evidenced by an instrument, the creditor must return it or endorse it as paid, and the instrument being in the debtor's hands is a presumption of payment.
- Appropriation of payments: where several debts exist and the sum paid is insufficient, the rules of appropriation apply. Specify in writing at the time of payment which debt is intended.
- Bank transfers: state the reason for the transfer in the reference field, which is an important indication before a court.
Payment in Kind, Novation, and Delegation
Three situations in which the subject of the obligation or one of its elements changes, requiring careful distinction:
- Payment in kind: the creditor accepts something other than the subject of the obligation, such as accepting property in satisfaction of a money debt. The obligation is extinguished, and the rules of sale apply as to warranty of title and defects.
- Novation: substituting a new obligation for an old one with a change in subject, cause, or one of the parties, requiring an intention to novate expressed clearly and unambiguously.
- Effect of novation on security: the old obligation is extinguished with its security, so mortgages and guarantees do not pass to the new obligation without agreement. This is the point creditors most often overlook.
- Delegation: the debtor procures another to undertake payment to the creditor. It is novatory where the original debtor's discharge is agreed, and non-novatory where they remain bound alongside the delegate.
Set-Off
Set-off extinguishes two cross-claims to the extent of the lesser, and is a highly practical tool in commercial dealings:
- Legal set-off: operates by force of law once its conditions are met. The claims must be reciprocal between the same two persons, must be money or fungibles of the same kind and quality, and both must be due and free from serious dispute.
- It must be invoked: set-off does not operate automatically before a court. The interested party must plead it, and the court will not apply it of its own motion.
- Agreed set-off: may be agreed even where a condition of legal set-off is absent, such as claims of different kinds or one not yet due.
- Excluded claims: set-off may not prejudice third-party rights, may not apply to what cannot be attached such as subsistence maintenance, and does not apply to property usurped or held on deposit.
- Effect on security: the debt is extinguished to the extent of the set-off, and its security is extinguished correspondingly.
Merger, Release, and Impossibility
Three situations in which an obligation is extinguished without the creditor actually receiving satisfaction:
- Merger: the capacities of creditor and debtor unite in one person, as where a debtor inherits from their creditor. The obligation is extinguished to the extent of the merger, and revives retroactively if the cause of merger ceases.
- Release: the creditor waives the claim by unilateral act, without consideration, provided the debtor does not refuse. The rules on gratuitous dispositions apply as to capacity.
- Supervening impossibility: the obligation is extinguished where performance becomes impossible through an external cause not attributable to the debtor, such as destruction of a specific thing by force majeure.
- Partial or temporary impossibility: does not extinguish the whole obligation but may suspend or reduce it correspondingly, the debtor remaining bound to what remains possible.
- Burden of proof: the debtor must establish the external cause. Mere difficulty or increased cost of performance is insufficient. Hardship and impossibility are distinct.
Extinctive Prescription
The passage of time is an independent ground extinguishing a claim, and it is among the most consequential defences in practice:
- Nature: prescription extinguishes the right to sue while the obligation survives as a natural obligation, so a person who pays a time-barred debt cannot recover what was paid.
- Must be pleaded: the court does not apply prescription of its own motion. The debtor must raise it, and may do so at any stage of the proceedings.
- Varying periods: periods differ according to the nature of the right. There is a general long period and shorter periods for certain periodic, professional, and commercial claims.
- Interruption: prescription is interrupted by judicial claim, formal notice, or the debtor's express or implied acknowledgment, and a fresh period begins.
- Suspension: prescription is suspended whenever an impediment prevents the creditor from pursuing the claim.
- Contrary agreements void: the parties may not agree a period differing from the statutory one, nor waive prescription before the right to it has accrued.
Practical Guidance
- Do not pay anything without obtaining a written receipt identifying the debt intended.
- Where several debts exist, specify in writing which you are paying, otherwise appropriation follows rules that may not serve your interest.
- When rescheduling a debt, state expressly that the agreement is a variation and not a novation if you wish the security to survive.
- Plead set-off expressly in your submissions, as the court will not apply it of its own motion.
- Monitor limitation periods on your claims and interrupt them by formal demand before they expire.
- Retain debt instruments after settlement endorsed as paid. They will be your evidence years later.
Understanding how obligations are extinguished matters no less than understanding how they arise, since it is through this that rights are preserved and risk managed. Yamnak Law Firm advises on debt settlement and drafts discharge and rescheduling agreements, and pleads defences of payment, set-off, and prescription before the courts.
