Chapter IV – Extinguishment of Obligations obligor may recover as though there had been

a strict and complete fulfillment, less damages

Art. 1231. Obligations are extinguished: suffered by the obligee.
 Provision on substantial performance of
(1) By payment or performance: the obligation. It is an exception to Art.
1233 (payment is complete if the
(2) By the loss of the thing due: prestation is completely delivered or
performed).
(3) By the condonation or remission of the  Requisites:
debt; o There must be substantial
performance; and
(4) By the confusion or merger of the rights of o Debtor is in good faith
creditor and debtor;
Art. 1235. When the obligee accepts the
(5) By compensation; performance, knowing its incompleteness or
irregularity, and without expressing any
(6) By novation. protest or objection, the obligation is deemed
fully complied with.
Other causes of extinguishment of obligations,  Reason for this provision: Estoppel
such as annulment, rescission, fulfillment of a o Estoppel – an admission or
resolutory condition, and prescription, are representation that is rendered
governed elsewhere in this Code. conclusive upon the person
making it, and cannot be denied
(Focus on discussions of the book/class or disproved as against the
discussion on Payment, Loss of the Thing Due, person relying thereon. (Art.
and Compensation. Kindly know the definition 1431)
and essence of condonation or remission,
confusion, and novation) Art. 1236. The creditor is not bound to accept
 Remember the mnemonic, PaLo3CoNo payment or performance by a third person
who has no interest in the fulfillment of the
Section 1 – Payment or Performance obligation, unless there is a stipulation to the
contrary.
Art. 1232. Payment means not only the Whoever pays for another may demand from
delivery of money but also the performance, in the debtor what he has paid, except that if he
any other manner, of an obligation. paid without the knowledge or against the will
of the debtor, he can recover only insofar as
Art. 1233. A debt shall not be understood to the payment has been beneficial to the debtor.
have been paid unless the thing or service in
which the obligation consists has been Art. 1237. Whoever pays on behalf of the
completely delivered or rendered, as the case debtor without the knowledge or against the
may be. will of the latter, cannot compel the creditor to
 Remember and memorize the definition subrogate him in his rights, such as those
of payment in 1231. arising from a mortgage, guaranty, or penalty.
 Debt may refer to payment of money or
performance of the obligation (to do or Art. 1238. Payment made by a third person
not to do an act). who does not intend to be reimbursed by the
Art. 1234. If the obligation has been debtor is deemed to be a donation, which
substantially performed in good faith, the
requires the debtor's consent. But the insofar as the payment has been beneficial to
payment is in any case valid as to the creditor him.
who has accepted it. Payment made to a third person shall also be
 the persons who the creditor must valid insofar as it has redounded to the benefit
accept payment from are: of the creditor. Such benefit to the creditor
o debtor; need not be proved in the following cases:
o any person who has interest in (1) If after the payment, the third person
the obligation; or acquires the creditor's rights;
o third person who has no (2) If the creditor ratifies the payment to the
interest in the obligation but is third person;
stipulated that he can make (3) If by the creditor's conduct, the debtor has
payment. been led to believe that the third person had
 Effect of payment of a third person: authority to receive the payment.
o recovery of payment insofar as
it has been beneficial to the Art. 1242. Payment made in good faith to any
debtor (if payment is made person in possession of the credit shall release
without knowledge of the the debtor.
debtor);
o if with knowledge, the rights of Art. 1243. Payment made to the creditor by
reimbursement and the debtor after the latter has been judicially
subrogation ordered to retain the debt shall not be valid.
 Note difference of reimbursement and
subrogation in the book. Art. 1244. The debtor of a thing cannot compel
the creditor to receive a different one,
Art. 1239. In obligations to give, payment although the latter may be of the same value
made by one who does not have the free as, or more valuable than that which is due.
disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice In obligations to do or not to do, an act or
to the provisions of Article 1427 under the Title forbearance cannot be substituted by another
on "Natural Obligations." act or forbearance against the obligee's will.

Art. 1240. Payment shall be made to the  First paragraph – refers to a real
person in whose favor the obligation has been obligation to deliver a specific thing.
constituted, or his successor in interest, or any Recall essence of specific things as the
person authorized to receive it. object of an obligation.
 Persons to whom payment shall be  Second paragraph – refers to personal
made: obligations
o Creditor;
o Successor-in-interest of the Art. 1245. Dation in payment, whereby
creditor; or property is alienated to the creditor in
o Any person authorized to satisfaction of a debt in money, shall be
receive it governed by the law of sales.
 Special kind of payment
Art. 1241. Payment to a person who is  Dation in payment – Conveyance of
incapacitated to administer his property shall ownership of a thing as an accepted
be valid if he has kept the thing delivered, or equivalent or performance
Art. 1246. When the obligation consists in the when tendered by the debtor in the
delivery of an indeterminate or generic thing, right amount.
whose quality and circumstances have not Art. 1250. In case an extraordinary inflation or
been stated, the creditor cannot demand a deflation of the currency stipulated should
thing of superior quality. Neither can the supervene, the value of the currency at the
debtor deliver a thing of inferior quality. The time of the establishment of the obligation
purpose of the obligation and other shall be the basis of payment, unless there is
circumstances shall be taken into an agreement to the contrary.
consideration.  Take note definition of inflation and
 Rule of the medium quality deflation
Art. 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the Art. 1251. Payment shall be made in the place
payment shall be for the account of the designated in the obligation.
debtor. With regard to judicial costs, the Rules
of Court shall govern. There being no express stipulation and if the
undertaking is to deliver a determinate thing,
Art. 1248. Unless there is an express the payment shall be made wherever the thing
stipulation to that effect, the creditor cannot might be at the moment the obligation was
be compelled partially to receive the constituted.
prestations in which the obligation consists.
Neither may the debtor be required to make In any other case the place of payment shall be
partial payments. the domicile of the debtor.

However, when the debt is in part liquidated If the debtor changes his domicile in bad faith
and in part unliquidated, the creditor may or after he has incurred in delay, the additional
demand and the debtor may effect the expenses shall be borne by him.
payment of the former without waiting for the
liquidation of the latter. These provisions are without prejudice to
venue under the Rules of Court.
Art. 1249. The payment of debts in money shall
be made in the currency stipulated, and if it is SUBSECTION 1. - Application of Payments
not possible to deliver such currency, then in
the currency which is legal tender in the Art. 1252. He who has various debts of the
Philippines. same kind in favor of one and the same
creditor, may declare at the time of making the
The delivery of promissory notes payable to payment, to which of them the same must be
order, or bills of exchange or other mercantile applied. Unless the parties so stipulate, or
documents shall produce the effect of payment when the application of payment is made by
only when they have been cashed, or when the party for whose benefit the term has been
through the fault of the creditor they have constituted, application shall not be made as
been impaired. to debts which are not yet due.
In the meantime, the action derived from the If the debtor accepts from the creditor a
original obligation shall be held in the receipt in which an application of the payment
abeyance. is made, the former cannot complain of the
 Legal tender – that currency which a same, unless there is a cause for invalidating
debtor can legally compel a creditor to the contract.
accept in payment of a debt in money
Art. 1253. If the debt produces interest, thereof to the satisfaction of their
payment of the principal shall not be deemed credits.
to have been made until the interests have  Requisites:
been covered. o Two or more creditors;
o The debtor must be partially
Art. 1254. When the payment cannot be insolvent;
applied in accordance with the preceding rules, o The assignment must involve all
or if application can not be inferred from other properties of the debtor;
circumstances, the debt which is most onerous o The cession must be accepted
to the debtor, among those due, shall be by all creditors
deemed to have been satisfied.

If the debts due are of the same nature and SUBSECTION 3. - Tender of Payment and
burden, the payment shall be applied to all of Consignation
them proportionately. Art. 1256. If the creditor to whom tender of
 Application of payments – is the payment has been made refuses without just
designation of the debt to which should cause to accept it, the debtor shall be released
be applied the payment made by a from responsibility by the consignation of the
debtor who has various debts of the thing or sum due.
same kind in favor of one and the same
creditor. Consignation alone shall produce the same
 Requisites: effect in the following cases:
o One debtor and creditor; (1) When the creditor is absent or unknown, or
o Two or more debts; does not appear at the place of payment;
o Debts must be of the same (2) When he is incapacitated to receive the
kind; payment at the time it is due;
o Debts to which payment made (3) When, without just cause, he refuses to
by the debtor has been applied give a receipt;
must be due; (4) When two or more persons claim the same
o The payment made must not be right to collect;
sufficient to cover all the debts. (5) When the title of the obligation has been
lost.
SUBSECTION 2. - Payment by Cession
Art. 1255. The debtor may cede or assign his Art. 1257. In order that the consignation of the
property to his creditors in payment of his thing due may release the obligor, it must first
debts. This cession, unless there is stipulation be announced to the persons interested in the
to the contrary, shall only release the debtor fulfillment of the obligation.
from responsibility for the net proceeds of the
thing assigned. The agreements which, on the The consignation shall be ineffectual if it is not
effect of the cession, are made between the made strictly in consonance with the
debtor and his creditors shall be governed by provisions which regulate payment.
special laws.
 Payment by Cession – assignment or Art. 1258. Consignation shall be made by
abandonment of al the properties of depositing the things due at the disposal of
the debtor for the benefit of his judicial authority, before whom the tender of
creditors in order that the latter may payment shall be proved, in a proper case, and
sell the same and apply the proceeds
the announcement of the consignation in other o Consignation of the thing or
cases. sum due;
o Subsequent notice of
The consignation having been made, the consignation made to the
interested parties shall also be notified interested parties
thereof.
SECTION 2. - Loss of the Thing Due
Art. 1259. The expenses of consignation, when Art. 1262. An obligation which consists in the
properly made, shall be charged against the delivery of a determinate thing shall be
creditor. extinguished if it should be lost or destroyed
without the fault of the debtor, and before he
Art. 1260. Once the consignation has been duly has incurred in delay.
made, the debtor may ask the judge to order
the cancellation of the obligation. When by law or stipulation, the obligor is liable
even for fortuitous events, the loss of the thing
Before the creditor has accepted the does not extinguish the obligation, and he shall
consignation, or before a judicial declaration be responsible for damages. The same rule
that the consignation has been properly made, applies when the nature of the obligation
the debtor may withdraw the thing or the sum requires the assumption of risk.
deposited, allowing the obligation to remain in  It is understood that a thing is lost
force. when it perishes, or goes out of
commerce, or disappears in such a way
Art. 1261. If, the consignation having been that its existence is unknown or it
made, the creditor should authorize the debtor cannot be recovered. (Art. 1189)
to withdraw the same, he shall lose every  Requisites for Loss to extinguish an
preference which he may have over the thing. obligation to give:
The co-debtors, guarantors and sureties shall o Obligation is to deliver a specific
be released. or determinate object;
o Loss occurs without fault of the
 Tender of payment – is the act on the debtor;
part of the debtor, of offering to the o Debtor is not guilty of delay.
creditor the thing or amount due.
 Consignation – act of depositing the Art. 1263. In an obligation to deliver a generic
thing or amount due with the proper thing, the loss or destruction of anything of the
court when the creditor does not desire same kind does not extinguish the obligation.
or cannot receive it, after complying  Principle of genus nunquam perit or
with the formalities required by law. genus never perishes
 Requisites:
o Existence of a valid debt which Art. 1264. The courts shall determine whether,
is due; under the circumstances, the partial loss of the
o Tender of payment by the object of the obligation is so important as to
debtor and refusal without extinguish the obligation.
justifiable reason by the
creditor to accept it; Art. 1265. Whenever the thing is lost in the
o Previous notice of consignation possession of the debtor, it shall be presumed
to persons interested in the that the loss was due to his fault, unless there
fulfillment of the obligation; is proof to the contrary, and without prejudice
to the provisions of article 1165. This
presumption does not apply in case of
earthquake, flood, storm, or other natural
calamity.

Art. 1266. The debtor in obligations to do shall

also be released when the prestation becomes
legally or physically impossible without the
fault of the obligor.

Art. 1267. When the service has become so

difficult as to be manifestly beyond the
contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.

Art. 1268. When the debt of a thing certain and

determinate proceeds from a criminal offense,
the debtor shall not be exempted from the
payment of its price, whatever may be the
cause for the loss, unless the thing having been
offered by him to the person who should
receive it, the latter refused without
justification to accept it. (1185)
Art. 1269. The obligation having been
extinguished by the loss of the thing, the
creditor shall have all the rights of action
which the debtor may have against third
persons by reason of the loss.