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Chapter 4: EXTINGUISHMENT OF OBLIGATIONS

Causes of Extinguishment of Obligations
1. By Payment or performance
2. By loss of the thing due
3. By the condonation or remission of the thing due
4. By the confusion or merger of the rights of creditor and debtor
5. By compensation
6. By Novation
7. Annulment
8. Rescission
9. Fulfillment of a Resolutory Condition
10.Prescription
Other Causes of Extinguishment obligations
1.
2.
3.
4.
5.
6.

Death of a Party- for personal obligation

Mutual Desistance or withdrawal
Arrival of Resolutory Condition (Art. 1193, par 2)
Compromise(Art. 2028)
Impossibility of Fulfillment ( Art. 1266)
Happening of Fortuitous Event (Art. 1174)

General Provisions
Art. 1231. Obligations are extinguished:
1. By Payment or performance
2. By loss of the thing due
3. By the condonation or remission of the thing due
4. By the confusion or merger of the rights of creditor and debtor
5. By compensation
6. By Novation
7.
Other causes of extinguishment of obligations, such as the following are
governed elsewhere in the Civil Code.
8. Annulment
9. Rescission
10.Fulfillment of a Resolutory Condition
11.Prescription
Section 1: Payment or Performance
Art. 1232. Payment means not only the delivery of money, but also the
performance, in any other manner, of an obligation.
Meaning of Payment
- delivery of money, giving of a thing, the doing of an act, the not doing of an act,
payment of damages or penalty, in lieu of the fulfillment of an obligation

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Art. 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be.
When a debt considered paid?
1. Complete delivery or rendition of the thing due (integrity of prestation)
2. Delivery or performance of the very prestation due (identity of the
prestation)
3. Indivisibility
Art. 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
- An exception provided for Art. 1233
- Affords just compensation for the relative breach committed by the obligor.
- Obligor allowed to recover
Example: cement case
Requisite: Substantial Performance
1. There is substantial performance
2. Obligor must be in good faith
3. Slight breach
4. Must not be so material that intention of the parties is not attained.
Effect:
1. Obligor may recover as though there has been strict and complete fulfillment
2. Less damage suffered by the oblige
3. Right to rescind cannot be used for slight breach
Art. 1235. When the oblige accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest
or objection, the obligation is deemed fully complied with.
General Rule: Performance or delivery of the prestation must be complete. Art. 1232
Exceptions: 1. Substantial compliance Art. 1234
2. When the oblige or creditor accepts the performance, knowing its
incompleteness without expressing any protest or objection.
Requisite:
1. The obligee or creditor accepts the performance.
2. He knows that the performance is incomplete
3. He accepts it without expressing any protest or objection

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Art. 1236. The creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
General Rule: Creditor may refuse to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation.
Exception: stipulation to the contrary.
Persons from whom the creditor must accept payment:
1. The debtor
2. Any person who has an interest in the obligation- guarantor
3. A third person who has no interest in the fulfillment of the obligation when
there is stipulation that he can make payment.

Second Paragraph :(Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.)
-

Recognizes that payment or performance may be made by any person not

incapacitated, even without the knowledge or against the will of the debtor,
and although he has no interest in the fulfillment of the obligation.
Effect:
1. If made without the knowledge or against the will of the debtor
-Beneficial Reimbursement- payer can only recover from the debtor only
insofar as the payment has been beneficial to the latter.
2. If made with the knowledge of the debtor
-Full Reimbursement and Subrogation- the payer may recover from the debtor
all that he has paid and will acquire all the rights of the creditor.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter cannot compel the creditor to subrogate
him in his rights, such as those arising from mortgage, guaranty, or
penalty.
General rule: Whoever pays in behalf of the debtor is entitled to subrogation.
Subrogation can only take place when there is consent of the debtor.

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Exception: If the payment is without the knowledge or against the will of the
debtor. Or without the debtors consent
Effect if there is no consent: 1. Payer or third person is entitled to beneficial
reimbursement
2. Third person cannot compel the creditor to
subrogate him in the latters
accessory
rights
of
mortgage,
guaranty, or penalty.
* Subrogation can only take place when there is consent of the debtor.
Art. 1238. Payment made by a third person who does niot intend to be
reimbursed by the debtor is deemed to be a donation, which
requires the debtors consent. But the payment is in any case valid
as to the creditor who has accepted it.
Payment by a third person who does not intend to be reimbursed
- Payment is deemed a donation- requires the debtors consent to be valid
- However, if the creditor accepts the payment, it shall be valid as to him and
the payor- the payor then, may recover reimbursement from the debtor.
Art. 1239. In obligations to give, payment made by one who does not have
the free disposal of the thing due and capacity to alienate it shall
not be valid, without prejudice to the provisions of Art 1247 under
the title on Natural Obligations.
Meaning
1. Free disposal of the thing due- the thing to be delivered must not be subject
to any claim or lien or encumbrance.
2. Capacity to alienate- the person is not incapacitated to enter into contracts
and for that matter, to make disposition of the thing due
General Rule: In obligations to give, payment by one who does not have the free
disposition of the thing due and capacity to alienate it is not validThe thing paid
can be recovered.
Exception: Art. 1247- If the sum of money paid or a fungible thing delivered by the
incapacitated person in fulfillment of an obligation has been spent or consumed in
good faith by the creditor..- There shall be no right to recover.
Art. 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
Person to whom payment shall be made
1. Creditor or oblige
2. His successor in interest- heir or assignee

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3. Any person authorized to receive it- either by the creditor or by lawguardian, executor, administrator of the estate, liquidator of a partnership
or corporation
*Payment in good faith to any person in possession of the credit is valid although
such person may not be authorized to receive the payment
Art. 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or
insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it
has redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
1. If after the payment, the third person acquires the creditors
rights;
2. If the creditor ratifies the payment to the third person;
3. If by the creditors conduct, the debtor has been led to believe
that the third person had authority to receive the payment.
First Paragraph: Effect of payment to an incapacitated person
1. General rule: Payment to an incapacitated person is invalid.
2. Exception: Payment is valid if the incapacitated person kept the thing paid or
delivered or if he was benefited by the payment.
Second Paragraph: Effect of payment to a third person
1. General Rule: Payment to a third person or wrong party is not valid.
2. Exception: Payment will be valid if it has redounded to the benefit of the
creditor.
-benefit to the creditor is not presumed, it has to be satisfactorily
established.
When benefit to the creditor need not to be proved?
1. Subrogation of the payer in the creditors rights;
2. Ratification by the creditor;
3. Estoppels on the part of the creditor.
Art. 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor.
Payment to third person in possession of credit- good faith is presumed
-valid if the payer acted in good faith and in honest belief that he is making a valid
payment, therefore, obligation is fulfilled or extinguished
* Possession of the credit itself and not merely of the the document or instrument
evidencing the credit. Instrument must be transferrable by delivery.

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Art. 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
When payment to creditor not valid?
1. In an action against the debtor, who is the creditor of another, the latter
(debtor-astranger), during the pendency of the case, may be ordered by the
court to retain the debt until the right of the plaintiff, the creditor in the main
litigation is resolved.
2. Payment made subsequently by the debtor-stranger shall not be valid if the
plaintiff wins the case and cannot collect from the debtor to whom payment
is made. Such payment is considered in bad faith.
Art. 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or
more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligees
will.
First paragraph:
-refers to real obligation to deliver a specific thing.
-A thing different from that due cannot be offered or demanded against the will of
the creditor or debtor, as the case may be.
Second Paragraph:
- refers to personal obligations.
The act to be performed or the act prohibited cannot be substituted against the
obligees will.
*Prestation may be substituted if the obligee consents.

Art. 1245. Dation in payment whereby property is alienated to the creditor

in satisfaction of a debt in money shall be governed by the law of
sales.
4 Special Forms of Payment
1. Dation in Payment
2. Application of payments
3. Payment by cession
4. Tender of payment and consignation
Meaning of Dation in Payment

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-

The conveyance of ownership of a thing as an accepted equivalent of

performance.
An existing debt in money is satisfied, not by payment of money but by the
alienation of property.

Governing law
- Law of Sales
Art. 1246. When the obligation consists in the delivery of an indeterminate
or generic thing, whose quality and circumstances have not been
stated, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken
into consideration.
Rule of the Medium Quality
1. If the obligation consists in the delivery of a specific thing, the very thing due
must be delivered.
2. If the obligation is to deliver a generic thing, the purpose of the obligation
and other circumstances shall be taken into consideration to determine a
quality or kind of thing to be delivered. not superior nor inferior quality
*Benefits of this article may be waived by the creditor or by accepting a thing of
inferior quality and by the debtor by delivering a thing of superior quality.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor.
With regard to judicial costs, the Rules of Court shall govern.
General rule: The extrajudicial expenses required by the payment shall be for the
account of the debtor.
Exception: Stipulation of the parties as to who will bear the expenses.
*Losing party generally pays judicial costs- the statutory amounts allowed to a party
to an action for his expenses incurred in the action. -RoC
*Art. 1247 does not apply to expenses incurred by the creditor in going to the the
debtors domicile to collect.
Art. 1248. Unless there is an express stitpulation to that effect, the
creditor cannot be compelled partially to receive the prestations in
which the obligation consists. Neither may the debtor be required
to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may effect
the payment of the former without waiting for the liquidation of
the latter.

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-above provision contemplates obligations where there is only one creditor and only
one debtor.
General rule: Complete payment or performance of prestation/obligation is
necessary in order for payment to extinguish an obligation
Exception: Partial Performance is allowed when:
1. There is an express stipulation to that effect;
2. The debt is in part liquidated and in part unliquidated;
3. The different prestations in which the obligation consists are subject to
different terms or conditions which affect some of them.