ART. 1231.

Obligations are extinguished:

(1) By payment or performance;
(2) By the 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.

Modes of extinguishment of obligations classified.

Castan Classifies the modes of extinguishing obligations in the following manner:
(1) Voluntary:
(a) Performance:
1) Payment; and
2) Consignation.
(b) Substitution:
1) Dacion en pago (conveyance for payment); and
2) Novation.
(c) By release agreement:
1) Agreement subsequent to the constitution of the obligation:
a) Mutual waiver;
b) Unilateral waiver; and
c) Remission.
2) Agreement simultaneous to the constitution of the obligation:
a) Resolutory condition; and
b) Extinctive period.
(2) Involuntary:
(a) By reason of the subject:
1) Confusion; and
2) Death of the contracting parties in the cases where the obligations are personal.
(b) By reason of the object:
1) Loss of the thing due or impossibility of performance; and
(c) By failure to exercise (right of action):
1) Extinctive prescription.

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.
(1) Integrity of the prestation.
(2) Identity of the prestation.

Requisites for the application of Article 1234.

The requisites are:
(1) There must be substantial performance. Its existence depends upon the circumstances of each
particular case; and
(2) The obligor must be in good faith. Good faith is presumed in the absence of proof to the contrary.
Requisites for the application of Article 1235.
The requisites are:
(1) The obligee knows that the performance is incomplete or irregular; and
(2) He accepts the performance without expressing any protest or objection.

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 creditor’s rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor’s conduct, the debtor has been led to believe that the third person had authority
to receive the payment. (1163a)

Requisites of dation in payment.

In order that there be a valid dation in payment, the following are the requisites:
(1) There must be performance of the prestation in lieu of payment (animo solvendi) which may
consist in the delivery of a corporeal thing or a real right or a credit against a third person;
(2) There must be some difference between the prestation due and that which is given in substitution
(aliud pro alio); and
(3) There must be an agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different from that due.

Requisites for application of Article 1250.

The following requisites must be proven
(1) There is an offi cial declaration of extraordinary inflation or deflation from the Bangko Sentral ng
Pilipinas (BSP).
(2) The obligation is contractual in nature; and
(3) The parties expressly agreed to consider the effects of the extraordinary inflation or deflation.

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

Meaning of application of payments.

Application of payments is the designation of the debt to which should be applied the payment made
by a debtor who has various debts of the same kind in favor of one and the same creditor. (Art. 1252,
par. 1.)
Requisites of application of payments.
The requisites are:
(1) There must be one debtor and one creditor;
(2) There must be two or more 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.

Requisites of payment by cession.

They are:
(1) There must be two or more creditors;
(2) The debtor must be (partially) insolvent;
(3) The assignment must involve all the properties of the debtor; and
(4) The cession must be accepted by the creditors.

ART. 1256. If the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation of the
thing or sum due.
Consignation alone shall produce the same effect in the following 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 it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)

Requisites of a valid consignation.

In order that the debtor may be released from his obligation by the consignation of the thing or sum
due,11 the following requisites must be observed:
(1) existence of a valid debt which is due (Art. 1256, par. 1.)
(2) tender of payment by the debtor and refusal without justifiable reason by the creditor to accept it
(Ibid.);
(3) previous notice of consignation to persons interested in the fulfillment of the obligation (Art. 1257,
par. 1.);
(4) consignation of the thing or sum due (Art. 1258, par. 1.); and
(5) subsequent notice of consignation made to the interested parties.

Requirements for valid tender of payment.

Tender of payment is the definite act of the debtor of offering the creditor what is due the latter. There
must be a fusion of intent, ability and capability to make good such offer, which must be absolute and
must cover the amount due.
(1) Tender of payment must comply with the rules on payment. Thus, a check, whether a manager’s
check or ordinary check, is not legal tender (see Art. 1249.), and an offer of a check in payment of a
debt is not a valid tender and may be refused by the creditor.
(2) It must be unconditional and for the whole amount. It cannot be presumed by a mere inference
from surrounding circumstances. The tender of payment of only a portion of an obligation when the
contract gives to the creditor the right to require payment of the whole amount due and still unpaid
upon default of an installment, may be validly refused by the creditor.
(3) It must be actually made. The manifestation of a desire or
intention to pay is not enough. Thus, tender of payment cannot be presumed by a mere inference
from surrounding circumstances, such as sufficiency of available funds in the hands of the debtor. “A
proof that an act could have been done is no proof it was
actually done.”

ART. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance
by the obligor. It may be made expressly or impliedly. One and the other kind shall be subject
to the rules which govern inofficious donations. Express condonation shall, furthermore,
comply with the forms of donation. (1187)

Requisites of condonation or remission.

The requisites are the following:
(1) It must be gratuitous;
(2) It must be accepted by the obligor;
(3) The parties must have capacity;
(4) It must not be inofficious; and
(5) If made expressly, it must comply with the forms of donation.
It is also clear that remission, properly speaking, presupposes that the obligation is and continues to
be, demandable at the time of the remission.

ART. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)
The only requisites are:
(1) each of the parties has the right to dispose of the credit he seeks to compensate, and
(2) they agree to the mutual extinguishment of their credits.

ART. 1292. In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. (1204)

Requisites of novation.
In novation, there are four (4) essential requisites, namely:
(1) The existence of a previous valid obligation;
(2) The intention or agreement and capacity of the parties to extinguish or modify the obligation;
(3) The extinguishment or modification of the obligation; and
(4) The creation or birth of a valid new obligation.

Requisites of stipulation pour autrui.

They are the following:
(1) The contracting parties by their stipulation must have clearly and deliberately conferred a favor
upon a third person;
(2) The third person must have communicated his acceptance to the obligor before its revocation by
the obligee or the original parties;
 (3) The stipulation in favor of the third person should be a part and not the whole of the contract or
the contract itself;
(4) The favorable stipulation should not be conditioned or compensated by any kind of obligation
whatever; and
(5) Neither of the contracting parties bears the legal representation or authorization of the third party
for otherwise the rules on agency will apply.

ESSENTIAL REQUISITESOF CONTRACTS

GENERAL PROVISIONS
ART. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)

Requisites for the application of Article 1334.

For the article to apply, the following requisites must be present:
(1) The error must be mutual;
(2) It must be as to the legal effect of an agreement; and
(3) It must frustrate the real purpose of the parties.

Elements of undue influence.

The existence of undue influence depends upon the circumstances of each case and not on bare
academic rules. It must be shown by clear and convincing evidence. For undue influence to be
established to justify the cancellation of an instrument, three elements must be present
(1) a person who can be influenced;
(2) the fact that improper influence was exerted; and
(3) submission to the overwhelming effect of such unlawful conduct.

Requisites of causal fraud. Not all forms of fraud can vitiate consent. In order that fraud may

vitiate consent and be a cause for the annulment of a contract, the following requisites must be
present:
(1) There must be misrepresentation or concealment (Arts. 1338, 1339.) by a party prior to or
simultaneous to the consent or creation of the contract (Caram, Jr. vs. Laureta, supra.);
(2) It must be serious (Art. 1344.);
(3) It must have been employed by only one of the contracting parties. (Ibid.) Fraud committed by a
third person does not vitiate consent unless it was practiced in connivance with or at least with the
knowledge of the favored contracting party (see Art. 1342.);
(4) It must be made in bad faith or with intent to deceive (see Art. 1343.) the other contracting party
who had no knowledge of the fraud;
(5) It must have induced the consent of the other contracting party (Art. 1338.); and
(6) It must be alleged and proved by clear and convincing
evidence, and not merely by a preponderance thereof. So it is not enough that evidence offered to
prove fraud is more convincing or worthy of belief than that which is offered in opposition thereto.
Requisites of causal fraud.
Under Article 1344, in order that causal fraud may vitiate consent, the following are the requisites:
(1) It should be serious. — The seriousness of the fraud is a question of fact depending on the
circumstances. It does not mean its influence on the other contracting party, but its importance. The
requirement that fraud should be serious excludes from the effects of fraud slight and usual
deviations from the truth, almost inseparable, unfortunately, from transactions, especially those taking
place in fairs and markets. (see 8 Manresa 679; see Art. 1341.)
The fraud or dolo causante must be that which determines or is the essential cause of the contract.
(Caram, Jr. vs. Laureta, 102 SCRA 7 [1981].) In case the fraud is not serious or important enough to
make the contract voidable, the aggrieved party is entitled to demand an adjustment in the price or
consideration;
(2) It should not have been employed by both contracting parties, i.e.,they should not be in pari
delicto. — When fraud is employed by both parties, neither may ask for annulment as the fraud of one
neutralizes that of the other. The contract is, therefore, considered valid. The rule is in accordance
with the principle that “he who comes to court, must come with clean hands” (see Valdez vs. Sibal, 46
Phil. 930 [1924].);
(3) It should not have been known by the other contracting party. —
Neither may a contract be set aside on the ground of fraud if the party who was defrauded knew at
the time of execution of the contract all the facts upon which his claim of fraud is based (Ternate vs.
Aniversario, 8 Phil. 292 [1907]; Enriquez vs. Enriquez, 8 Phil. 607 [1907].); and
(4) It should be invoked by the proper party. — The party entitled to invoke fraud or bad faith as a
ground for nullifying a contract is the victim — the one who was tricked in giving his consent thereto.
Strangers to a contract cannot sue either or both contracting parties to set aside the same except
when he is prejudiced in his rights with respect to one of the contracting parties and can show
detriment which would positively result to him from the contract in which he has no intervention.

Requisites of things as object of contract.

In order that things may be the object of a contract, the following requisites must be present:
(1) The thing must be within the commerce of men, that is, it can legally be the subject of commercial
transaction (Art. 1347.);
(2) It must not be impossible, legally or physically (Art. 1348.);
(3) It must be in existence or capable of coming into existence (see Arts. 1461, 1493, 1494.); and
(4) It must be determinate or determinable without the need of a new contract between the parties.
(Arts. 1349, 1460, par. 2.)

Requisites of services as object of contract.

In order that service may be the object of a contract, the following requisites must concur:
(1) The service must be within the commerce of men;
(2) It must not be impossible, physically or legally (Art. 1348.); and
(3) It must be determinate or capable of being made determinate. (Arts. 1318[2], 1349.

Requisites of inheritance to be considered future.

A contract may be classified as a contract upon future inheritance where the following requisites
concur:
(1) The succession has not yet been opened at the time of the contract;
 (2) The object of the contract forms part of the inheritance; and
(3) The promissor has, with respect to the object, an expectancy of a right which is purely hereditary
in nature.

ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public poli-cy.
(1275a)

Requisites of cause.
The following are the requisites of cause:
(1) It must exist at the time the contract is entered into (Arts. 1352, 1409[3].);
(2) It must be lawful (Ibid.); and
(3) It must be true or real. (Art. 1353.)

Requisites of Rescission

1. Contract validly agreed upon

2. Lesion or pecuniary prejudice to one of the parties or to a third person
3. Must be based upon a case especially provided by law
4. No other legal remedy to obtain reparation for the damage
5. Party seeking for rescission must be able to return what he is obliged to restore
6. Object of the contract must not legally be in the possession of third persons who did not act in
bad faith
7. Period for filing the action must not have prescribed

Requisites of Ratification

1. Knowledge of the reason which renders the contract voidable;

2. Such reason must have ceased; and
3. Injured party must have executed an act which necessarily implies an intention to waive his right.