EXTINGUISHMENT OF OBLIGATIONS (Art.

1231) MODES:

1. By payment of performance;
2. By the loss of the thing due;
3. By 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
(Annulment, rescission fulfilment of a resolutory condition, and prescription,
are governed elsewhere in this code.)

IN ADDITION TO 1231, OTHER CAUSES OF EXTINGUISHMENT

1. Death of a party, if the obligation is personal;

2. Mutual desistance or withdrawal;
3. Arrival of a resolutory period;
4. Compromise;
5. Impossibility of fulfilment; and
6. Happening of a fortuitous event.
PAYMENT, MEANING 1232
1. On ordinary parlance, payment refers only to the delivery of money.
2. As a legal mode of extinguishing an obligation, may consist of not
only the delivery of money but also the giving of a thing, the doing of
an act, or not doing of an act.
When the debtor pays damages or penalty in lieu of the
fulfilment of an obligation, there is also payment .
In law, payment and performance are synonymous.

1233, WHEN DEBT IS CONSIDERED PAID

Requisites:

1. Integrity of prestation –when the thing or service has been

completely delivered or rendered.
As a general rule PARTIAL or IRREGULAR performance
will not produce extinguishment of an obligation.
 2. Identity of the prestation –the very prestation due must be
delivered or performed.

1234, RECOVERY, IN CASE OR SUBSTANTIAL PERFORMANCE IN

GOOD FAITH

Recovery in such cases is allowed provided the ff. requisites are fulfilled:

1. There must be substantial performance; and

2. The obligor must be in good faith.

1235, RECOVERY IN INC OR IRREG PERFORMANCE

Recovery in such cases is allowed provided the ff. requisites are fulfilled:

1. The obligee knows that the performance is incomplete or

irregular; and
2. He accepts the performance without expressing any protest or
objection.
1236, PERSONS FROM WHOM THE CREDITOR MUST ACCEPT THE
PAYMENT

1. The debtor;
2. Any person who has interest on the obligation; or
3. A third person who has no interest in the obligation when there is
stipulation that he can make payment.
i. Creditor may refuse payment by a third person

EFFECTS OF PAYMENT BY THIRD PERSON

A. If made WITHOUT the knowledge or against the will of debtor,

only up to the amount of the debt at the time of the payment

B. If made WITH the knowledge of the debtor, shall have the rights
of reimbursement and subrogation, to recover what he has paid
and to acquire all the rights of the creditor.
1237, RIGHT OF A THIRD PERSON TO SUBROGATION

A. If payment is done with consent of the debtor, he is entitled to

subrogation
B. If payment is made without consent of the debtor, not entitled to
subrogation, and cannot compel creditor for the same.
i. Consent of the debtor is an absolute requisite.

SUBROGATION- means assuming the legal rights of the debtor, the

person who pays is put into the shoes of the creditor.

REIMBURSEMENT- right to be refunded by mere reason of payment.

1238, PAYMENT BY A THIRD PERSON WHO DOES NOT INTEND TO BE
REIMBURSED

Payment by a third person who does not intend to be reimbursed is deemed a

DONATION, but requires

a. The debtor’s consent to be valid,

b. But no one should be compelled to accept the generosity of another, if
creditor chooses he shall reimburse 3rd person.

1239 FREE DISPOSAL OF THING DUE, CAPACITY TO ALIENATE

1. FREE DISPOSAL OF THE THING DUE- thing to be delivered must not be

subject to any claim or lien or encumbrance of a third person.
2. CAPACITY TO ALIENATE- the person is not:
a. incapacitated to enter into contracts and for that matter;
b. to make a disposition of the thing due.
Payment by one who does not have the free disposition of the thing due and capacity to
alienate is not valid, meaning the thing paid cannot be recovered.

Except in 1427, 18-21 y/o paying without parental consent, valid

1240, PERSON TO WHOM PAYMENT SHALL BE MADE

1. the creditor or obligee;

a. at the time the payment is to be made
2. His successor in interest; or
3. Any person authorized to receive it.
a. Authorized by creditor
b. Authorized by law

Payment in good faith to the wrong party NOT AN EXCUSE.

1421, PAYMENT TO INCAPACITATED PERSON

Payment to a person incapacitated to administer his property is not valid

unless such person
 a. KEPT THE THING PAID or DELIVERED, or;
b. was BENEFITED by the payment

Burden of proof of benefit upon the debtor who paid, failure to prove
makes the obligation demandable.

1421, WHEN BENEFIT TO CREDITOR NEED NOT BE PROVED BY

DEBTOR:

1. subrogation of the payer in the creditor’s rights;

2. ratification by the creditor; or
3. estoppel on the part of the creditor.

1242, PAYMENT TO THIRD PERSON IS POSSESSION OF CREDIT

Payment to third person in possession of credit is valid provided:

a. possession of the credit itself, not merely the document/

instrument evidencing the credit
 b. was done in good faith, in honest belief that he is making a valid
payment.

1243, WHEN PAYMENT TO CREDITOR IS VALID

Creditor --- Debtor-creditor --- Debtor-stranger

Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid.

But shall be valid if payment was made after the order, but before it was
known to creditor.

1244, PRESTATION DUE MUST BE COMPLIED WITH

First paragraph: real obligation to deliver a specific thing; a thing cannot be
OFFERED or DEMANDED against the will of the CREDITOR or DEBTOR.

Second paragraph: personal obligations; the act prohibited or to be

performed cannot be substituted against the obligee’s will.

When prestation may be substituted:

(1) in obligee consents (2) in facultative obligations (3) in
cases of waiver by the creditor or substitution is allows by stipulation, with
consent

1245, SPEACIAL FORMS OF PAYMENT

1. dation is payment (ART. 1245)

2. application of payments (ART. 1253)
3. payment by cession (ART. 1255)
4. tender of payment and consignation (ART. 1256-1261)

DATION OF PAYMENT (adjudication or dacion en pago) is the conveyance of

ownership of a thing as an accepted equivalent of performance.
Governed by the law of sales.

1246, RULE ON MEDIUM QUALITY

In obligations to deliver a specific thing, where quality and circumstance is not

stated:

(1) Creditor cannot DEMAND a thing of SUPERIOR quality (2) Debtor cannot
DELIVER a thing of INFERIOR quality

Benefit may be waived by (1) the creditor, (2) accepting inferior quality or by
(3) delivering superior quality.

1247, PAYMENT FOR EXTRAJUDICIAL EXPENSES

Debtor shall pay, as he is the one primarily benefited.

If the parties have made a stipulation re the same, then their stipulation
shall be followed.

Does not cover 1247, creditor going to debtor’s domicile to collect

1248, PERFORMANCE OF OBLIGATION SHOULD BE COMPLETE

For an obligation to be extinguished there must be a complete performance.

The creditor MAY accept partial performance, but he CANNOT be

COMPELLED.

The obligor MAY as well, CANNOT be REQUIRED to make partial payments.

Except when (1) expressly stipulated; (2) when the debt is in part liquidated
and in part unliquidated; or (3) when different prestations in which the
obligation consists are subject to different terms or conditions which affect
some of them

1249, LEGAL TENDER

LEGAL TENDER is that currency which a debtor can legally compel a creditor
to accept in payment of a debt in money when tendered by debtor in the
right amount.

All coins and notes issued by the Bangko Sentral ng Pilipinas constitute legal
tender for all debts.

Creditor may refuse payments by means of instruments of credits as they

are not legal tender and, therefore, the creditor cannot be compelled to
accept them.

i. In payment by instruments of credits, the demandability of the

obligation is suspended, but not extinguished until:

(1) they have been cashed; or (b) unless they have been impaired
through the fault of the
creditor
1250, INFLATION AND DEFLATION

1. Inflation is a sharp sudden increase of money or credit or both

without a corresponding increase in business transactions, causing
a drop in the value of money and rise of the general price level
2. Deflation is the reduction in volume and circulation of the available
money or credit, resulting in a decline of the general price level.

In event of extra-ordinary deflation or inflation which the parties could not

have reasonably foreseen, THE PURCHASING VALUE OF THE CURRENCY
AT THE TIME OF THE ESTABLISHMENT OF THE OBLIGATION shall be the
basis.

Applies only to contractual obligations with currency as mode of payment.

1251, PLACE WHERE OBLIGATION SHALL BE PAID

Without prejudice to the venue under rules of court:

1. If there is a stipulation, the payment shall be made in the place

designated.
2. If there is no stipulation and the thing to be delivered is SPECIFIC, the
payment shall be made at the place where the thing was, at the
perfection of the contract.
3. If there is no stipulation and the thing to be delivered in GENERIC, the
place of payment shall be the domicile of the debtor.
i. In this case, the creditor bears the expenses in going to the
debtors place, without prejudice to the rules of court.
ii. If the debtor changes his domicile in bad faith or after he
incurred delay, additional expenses shall be borne by him.
APPLICATION OF PAYMENTS

1252, MEANING AND REQUISITES

APPLICATION OF PAYMENTS is the designation of the debt to which the

payment made by the debtor who has various debts of the same kind in favour of
one and (with) the same creditor should be applied.

REQUISITES:

1. There must be one creditor;

2. There must be at least two debts;
3. The debts must be of the same kind;
 4. The debts to which payment made by the debtor has been applied must
be due; and
5. The payment made must not be sufficient to cover all the debts.

APPLICATION OF PAYMENTS NOT YET DUE, requisites:

1. There is a stipulation that the debtor may so apply; or

2. It is made by the debtor or creditor, as the case may be, for whose
benefit the period has been constituted.

1252, RULES ON APPLICATION OF PAYMENTS

1. The debtor has the first choice; he must indicate at the time of
making payment, and not afterwards, which particular debt is being
paid.
a. If, in making use of his right, the debtor applied the payment
to a debt, he cannot later claim that it should be applied to
another debt.
 b. The right to make the application once exercised is
irrevocable unless the creditor consents to the change.
2. If the debtor does not apply payment, the creditor may make the
designation by specifying in the receipt which debt is being paid.
3. The creditor has not also made the application, or if the application
is not valid, the debt, which is most onerous to the debtor among
those due, shall be deemed to have been satisfied.
4. If the debts due are the of the same nature and burden, the payment
shall be applied to all of them proportionately.

1253 INTEREST EARNED PAID AHEAD OF PRINCIPAL

The debtor cannot choose to credit his payment to the principal before the
interest is paid. The payment must be applied first to the interest, whatever
balance is left can be credited to the principal.

Subject to any AGREEMENT BETWEEN THE PARTIES, or WAIVER by

creditor.
1254 LEGAL APPLICATION OF PAYMENTS

In case no application of payment has been made by the debtor, then the
payment shall be applied:

a. To the most onerous debt;

b. If debts are all of the same nature and burden, to all of them
proportionately.

A debt is more onerous than another when it is more burdensome to the

debtor.
1255 PAYMENT BY CESSION

Payment by cession is the assignment or abandonment of all the properties

of the debtor for the benefit of his creditors in order that the latter may sell
the same and apply the proceeds thereof to the satisfaction if their credits.

Requisite: (1) there must be two or more creditors (2) the debtor must be
(partially) insolvent (3) the cession must be accepted by the
creditors.

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. The debtor is still liable if there is a balance.
 DATION CESSION
One creditor Several creditors
Does not presuppose insolvency Debtor is insolvent at time of
assignment
Does not involve all the property of Extends to all property of debtor
debtor subject to execution
Creditor becomes the owner Only acquires the right to sell the
thing and apply the proceeds to
their credit
An act of novation Not an act of novation
1256 TENDER OF PAYMENT AND CONSIGNATION

Tender of payment is the act, on the part of the debtor of offering the creditor the
thing or amount due, in his possession to be delivered at the time of the offer

Consignation is the act of depositing the thing or amount due with the proper
court when the creditor does not desire or cannot receive it, after complying with
the formalities required by law. It is always judicial and required a prior tender of
payment.

Requisites for valid consignation

1. Existence of a valid debt which is due;
2. Tender of payment of the debtor and refusal without justifiable reason by
creditor to accept it;
3. Previous notice of consignation to persons interested in the fulfilment of the
obligation
4. Consignation of the thing or sum due; and
5. Subsequent notice of consignation made to the interested parties.
Tender of payment is not required in the ff. cases:

1. When the creditor is absent or unknown, or does not appear at the

place of payment;
2. When he is incapacitated to receive the payment at the time due;
3. When, without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to protect;
5. When the title of the obligation has been lost.

Requisites for a valid tender of payment:

1. Tender of payment must comply with the rules on payment.

Even is valid, the ender does not by itself produce legal
payment unless it is completed by consignation
2. It must be unconditional and for the whole amount.
3. It must be actually made. The manifestation of a desire or intention
to pay is enough.
1257 CONSIGNATION REQUIRES PRIOR NOTICE TO PERSONS
INTERESTED

In the absence of prior notice to the persons interested in the fulfilment of

the obligation (such as guarantors, mortgagees, solidary debtors etc.), the
consignation, as payment, shall be VOID. The purpose is to give the creditor
a chance to reflect on his previous refusal to accept payment.

1258 CONSIGNATION MUST BE WITH PROPER JUDICIAL AUTHORITY

Consignation, BY DEPOSITING THE THING OR SUM DUE WITH PROPR

JUDICIAL AUTHORITY, is necessary to effect payment.

TENDER OF PAYMENT must be proved by the debtor in the proper case.

IN CASES WHERE TENDER IS NOT REQUIRED, only prior notice to

interested persons of the consignation needs to be proved.
1258 CONSIGNATION MUST BE WITH PROPER JUDICIAL AUTHORITY

After the consignation is made, the interested party must also be notified
thereof. In a case this is fulfilled by service of summons with a copy of
complaint.

The purpose of second notice is to enable the creditor to withdraw the thing
or sum deposited in case he accepts the consignation.

1259 CREDITOR BEARS EXPENSES OF CONSIGNATION

The expenses are chargeable to debtor however if the consignation is not

properly made.

Is charged against creditor because of the fault or unjust refusal to accept

payment.
CONSIGNATION IS DEEMED PROPERLY MADE IN THE FF. CASES:

1. When the creditor accept without objection as payment of the

obligation;
2. When creditor questioned, and the court after hearing, declares that
it has been properly made; and
3. When the creditor neither accepts nor questions the validity of the
consignation, and the court after hearing, orders the cancellation of
the obligation.

1260 WITHDRAWAK BY DEBTOR OF THE THING DUE

May be withdrawn by the debtor: (1) Before the creditor has accepted the
consignation; or (2) Before a judicial declaration that the consignation has
been properly made, as he is still the owner of the same.

All expenses are paid by the debtor. If withdrawal with consent of creditor,
article 1261 applies.
1261 EFFECT OF WITHDRAWAL WITH CONSENT OF CREDITOR

Creditor may authorize the debtor to withdraw the deposit

a. After he has accepted the same; or

b. After the court has issued an order cancelling the obligation.

Since the consignation is for the benefit of the creditor.

Their relations will remain as they were before the acceptance or

cancellation. However,

a. the creditor shall lose every preference which he may have over the
thing; and
b. the co-debtors (referring to solidary debtors), guarantors, and
sureties shall be released.

The solidary debtors are released only from their solidary liability, but not
from their shares of the obligation, since unlike guarantors and sureties, they
are also principal debtors.
LOSS OF THE THING DUE

1262, A THING IS CONSIDERED TO LOST WHEN IT perishes, or goes out

of commerce or disappears in such a way that its existence is unknown or it
cannot be recovered

Loss of the thing due extends to both obligations to give and to do.

Requisites for application:

1. the obligation is to deliver a specific things;

2. the loss of the thing occurs without the fault of the debtor; and
3. the debtor is not guilty of delay.

When it is not applicable

1. when the law provides

2. stipulation provides
3. when the nature of the requires an assumption of risk
4. when the obligation to deliver a specific thing arises from a crime.
1263, LOSS OF A GENERIC THING

Debtor is still liable even for loss due to fortuitous event, based on the
principle genus nunquam perit, a generic thing never perishes.

1264, EFFECT OF PARTIAL LOSS OF A SPECIFIC

Partial loss is when only a portion of the thing is lost or destroyed

or when it suffers depreciation or deterioration.
Is the equivalent of difficulty of performance in obligations to do.

THE COURT is given the discretion in case of disagreement between the

parties, to determine whether under the circumstances it is so important in
relation to the whole as to extinguish the obligation.
1265, PRESUMPTION OF LOSS IN CASE OD LOSS OF THING IN
POSSESSION OF DEBTOR

Presumed to be due to the fault of debtor, unless there is proof to the

contrary.

EXCEPTION: in case of natural calamities, lack of fault on the part of the

debtor is more likely. So it is unjust to presume negligence.

1266, EFFECT OF IMPOSSIBLE PERFORMANCE

Debtor shall be released when the prestation becomes legally impossible.

Impossibility needs to be impossible AFTER constitution of obligation, if

BEFORE then the obligation is void ab initio.
1267, EFFECT OF DIFFICULTY OF PERFORMANCE

The general rule is that impossibility of performance releases the obligor.

has become so difficult means as to be manifestly beyond the contemplation

of both parties. There is an element of unforeseen or fortuitous event in the
contemplated case.

Applicable to both PERSONAL and REAL obligations.

1268, EFFECT OF FORUITIOUS EVENT WHER OBLIGATION PROCEEDS

FROM A CRIMINAL OFFENSE

Fortuitous event does not exempt debtor from liability, the obligation
subsists except:

When the creditor refuses to accept the thing without justification,

after it was offered to him. Consignation is NOT necessary.
1269, RIGHT OF CREDITORS TO GO AGAINST THIRD PERSONS

Creditor is given the right to go against the third person responsible for the
loss. There is no need for an assignment from the debtor.

The RIGHTS of action of debtor are transferred to creditor from the moment
the obligation is extinguished, by operation of law to protect the interest of
creditor by reason of the loss.
CONDONATION OR REMISSION OF DEBT

1270

1271

1272

1273

1274

CONFUSION OR MERGER OF RIGHTS

1275

1276

1277

COMPENSATION
1278

1279

1280

1281

1282

1283

1284

1285

1286

1287

1288
1289

1290

NOVATION

1291

1292

1293

1294

1295

1296

1297

1298
1299

1300

1301

1302

1303

1304