CIVIL LAW

EXTINGUISHMENT
OF OBLIGATIONS
 How obligations are
extinguished
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 debt
4. By the confusion or merger of the rights of creditor
and debtor
5. By compensation
6. By novation
Other causes of extinguishment of obligations
such as annulment, recission, fulfilment of a resolutory
condition, and prescription, are governed elsewhere
in this code.
SEC. 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.

Payment may consist of not only in the

delivery of money but also the giving of a
thing (other than money), the doing of an act,
or not doing of an act.
- Payment of penalty or damages in lieu
of fulfilment obligation.
 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.
Partial
or irregular performance will not
produce the extinguishment of an obligation
Example: S obliged himself to deliver 100
sack of rice to B. S delivered only 90 sacks.
Under the law, there is no payment by S, and
B can refuse to pay for the 90 sacks if S does
not deliver what is lacking.
 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 fulfilment, less
damages suffered by the obligee.

Requisites
1. There must be substantial performance
2. The obligor must be in good faith
 Example: S obliged himself to deliver 500
bags of cement to B. Despite diligent effort
on his part, S was able to deliver only 400
bags because of cement shortage.

S can recover as though there had been

complete delivery less the price of the 100
bags. S must show that that he attempted in
good faith to comply with obligation.
 Art. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any
protest or objection, the obligation is
deemed fully complied with.

Ifthe payment is incomplete or irregular, the

creditor may properly reject it. In case of
acceptance, the law considers that he
waives his right. The whole obligation is
extinguished.
 Requisites
1. The obligee knows that the performance is
incomplete or irregular
2. He accepts the performance without
expressing any protest or objection
Example: X agreed to paint the house of Y.
according to their agreement, X would use
a particular brand of paint. If Y accepted
the performance of X, knowing that the
paint used was another brand and without
expressing any protest or objection, the
obligation is deemed fully complied with.
(not liable for damages)
 Art.
1236. The creditor is not bound to accept
payment or performance by a third person
who has no interest in the fulfilment 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.
 Creditor must accept payment from:
1. Debtor
2. Any person who has an interest in the
obligation
3. A third person who has no interest in the
obligation when there is a stipulation that he
can make payment.

Creditor may refuse payment by a third

person
 Effect of payment by a third person
1. If made without the knowledge or against
the will of the debtor payer can recover up
to the extent or amount of the debt at the
time of payment.
2. If made with knowledge of the debtor
right of reimbursement and subrogation (to
recover what has been paid and 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.
Whoever pays on behalf of the debtor is
entitled to subrogation if the payment is with
the consent of the latter.
If the payment is without the knowledge or
against the will of the debtor, the third
person cannot compel the creditor to
subrogate him in the latters accessory rights
of mortgage, guaranty or penalty.
 Example: D borrowed from C P1000. G is the
guarantor. Without the knowledge or consent of D, S
paid C P1000.
S can claim reimbursement from D for the whole
amount inasmuch as D was benefited.
If D cannot pay S, S cannot proceed against G
(guarantor), even if C is willing, because having paid
without the consent of D, S is not entitled to
subrogation. But if the payment was with express
approval of D, S would be entitled not only with
reimbursement but also subrogation.
Suppose the obligation of D is secured by a mortgage
of a land owned by D. payment by S without the
knowledge or against the will of D, cannot give S the
right of subrogation. S can recover only insofar as the
payment has been beneficial to D.
 Art. 1238. Payment made by a third person who
does not 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.
Example: D owes C P1000. without the intention of
being reimbursed, S paid Ds obligation. D accepted
Ss generosity.
D is not liable to S and his obligation to C is
extinguished
If D did not consent to the donation, S may recover
from D since there has been no donation.
Nevertheless, the obligation of D to C is extinguished.
 Art.
1239. In obligation 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 Article 1427 under the title on
Natural Obligations.
Free disposal of the thing due the thing to be
delivered must not be subject to any claim or
lien or encumbrance of a third person
Capacityto alienate the person is not
incapacitated to enter into contracts and 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. The thing paid can be
recovered
The creditor cannot be compelled to accept
payment where the person has no capacity to
make.

Example: S agreed to sell to B a TV. If the TV is

delivered to B by S belongs to C, the same can
be recovered by C because the payment is not
valid. S does not have free disposal of the TV.
S, a minor, delivered the TV to C. The TV can be
recovered. S has no capacity to alienate.
 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.

Payment shall be made to:

1. the creditor or obligee
2. his successor in interest
3. any person authorized to receive
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 3rd
person;
3. If, by the creditors conduct, the debtor has been
led to believe that the third person had authority
to receive the payment.
 Art.1242. Payment made in good faith to any
person in possession of the credit shall release
the debtor.
Refers to possession of credit not merely the
document evidencing the credit
Example: D is indebted to C in the amount of
P1000 evidence by a promissory note signed by
D in favor of C. C lost the promissory note and
later found by T who demanded payment from
D.
Payment to T is not valid since he is not the
possessor of credit but merely of the document.
But if the promissory note is payable to
bearer or holder, the payment is valid
 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.
Example: D owes C P1000. E, in turn, Owes D
P1000. In an action by C against D, E, upon
petition of C, may be ordered by the court
not to pay D and to retain the debt in the
meantime. In this case, the debt of E is said
to be garnished or is subjected to payment
to C.
Any payment made by E to D in violation
of the judicial order is invalid, therefore, C
may still hold E liable.
 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 obligation to do or not to do, an act or
forbearance cannot be substituted by another
act or forbearance against the obligees will.
A thing different from that due cannot be
offered or demanded against the will of the
debtor or creditor
The act to be performed or the act prohibited
cannot be substituted against the will of obligee.
Substitution can be made 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.
Dacion in payment (dacion en pago) the
conveyance of ownership of a thing as an
accepted equivalent of performance.
Example: D owes C P15,000. to fulfill the
obligation, D with the consent of C, delivers a
piano in payment of the obligation. (If the piano
is worth about P15,000, otherwise, delivery will
be applied only to the extent of the value of the
piano as agreed by the parties).
 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.
 Delivery of Specific/Determinate thing: the very
same thing must be delivered
Delivery of generic/indeterminate thing: the
purpose and circumstances shall be taken into
consideration to determine the quality or kind of
thing to be delivered
Example: S promised to deliver to B a horse. B
cannot compel S to deliver a price-winning
race horse. Neither can S require B to accept an
old sickly horse.
If B owns a race horses and horse-racing is his
main hobby, which fact is known to S, and the
price agreed upon is the reasonable price of a
race horse, then S must deliver a race horse.
 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.

The reason is that the obligation is

extinguished when payment is made and it
is the debtor who is primarily benefited.

Ifthe parties have stipulation, the stipulation

shall be followed.
 Art.1248. Unless there is an express stipulation 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.

Toextinguish obligation, there must be

complete performance of the prestation
 The creditor may accept but he cannot be
compelled to accept partial performance.
The debtor cannot be required to make partial
payments

When partial performance allowed

1. when there is a express stipulation to that
effect
Example: D is indebted to C for P5000 due
today. D cannot compel C to receive P4000 in
partial payment. C cannot required D to pay
P4000. except, if there is an agreement
between them.
 2. when the debt is in part liquidated
(determined or computed) and partly
unliquidated.
Example: If D owes C P5000 plus the share of C
from the profit of a business, which is not yet
liquidated or determined, C may demand and
D may effect the payment of P5000 which is
already known.
3. when the different prestations are subject to
different terms or conditions which affect some
of them.
Example: If P4000 of the debt of D is due today
and P1000 tomorrow, the obligation can be
complied partially.
 Art.1249. The payment of debts in money shall
be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to
order, or bills of exchange or other mercantile
documents shall produce the effect of payment
only when they have been cashed, or when
through the fault of the creditor they have been
impaired.
In the meantime, the action derived from
the original obligation shall be held in
abeyance.
 Legal Tender the currency which a debtor
can legally compel a creditor to accept in
payment of a debt in money tendered by
the debtor in the right amount.
Max of P50 for 25cents
Max of P20 for 10cents or less
All coins and bills from P1 is legal tender

Promissorynotes, checks, bills of exchange

and other commercial documents are not
legal tender and the creditor cannot be
compelled to accept them.
 Art. 1250. In case of extraordinary inflation or
deflation of the currency stipulated should
supervene, the value of the currency at the time
of the establishment of the obligation shall be
the basis of payment, unless there is an
agreement to the contrary.

Example: D borrowed from C P5000 payable

after 5 years. On maturity, the value of P5000
dropped to P2500 because of inflation. In this
case, the bases of payment shall be the
equivalent value of the currency today to that
five years ago. Hence, D is liable to pay C
P10,000.
 Art.1251. Payment should be made in the place
designated in the obligation.
There being no express stipulation and if the
undertaking is to deliver a determinate thing,
the payment shall be made wherever the thing
might be at the moment the obligation was
constituted.
In any other case the place of payment shall be
the domicile of the debtor
If the debtor changes his domicile in bad faith
or after he has incurred in delay, the additional
expenses shall be borne by him.