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Obligations and Contracts
FINALS
CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS
ARTICLE 1231
General Provisions
OBLIGATIONS ARE EXTINGUISHED:
• By payment or performance
• By the loss of the thing due
• By the condonation or remission of the debt
• By the confusion or merger of the rights of creditor
and debtor
• By compensation
• By novation
Other causes of extinguishment of obligations such as
annulment, rescission, fulfillment of a resolutory condition,
and prescription are governed elsewhere in this Code.
PAYMENT OR PERFORMANCE
• Payment means not only the delivery of money but
also the performance, in any other manner, of an
obligation.
• In order for payment or performance to be valid,
there must be a pre-existing obligation
• Payment can be throw money or something in kind
(obligation to give, to do, or not to do)
• EXAMPLE: Yung mga ex deal hindi nagbabayaran ng
pera dun, service ang binibigay
o Payment by money
ARTICLE 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
• A debt isn't considered paid until you've given or
done everything you owe.
• When is a debt considered paid?
REQUISITES OF PAYMENT
• There must be an integrity of the station
o The prestation must be fulfilled completely
o EXAMPLE: I obliged to pay you 1,000 pesos,
kaya lang ang binayad mo lang ay 500 pesos,
meron nang violation ng integrity of
prestation kasi hindi naman yun ang usapan
natin. Kung sinabi mo na one time big time
babayaran mo nang buo yung 1,000 pesos,
bayaran mo dapat yung buo hindi
installment.
o EXCEPTIONS IN INTEGRITY:
▪ Substantial compliance in good
faith (Art. 1234), Waiver (Art.
1235), Application of payments
▪ The identity of the prestation – the
very prestation must be delivered
• EXAMPLE: You were
obliged to deliver to me a
ang idineliver mo sakin ay
loaf bread (violation of
identity of the prestation)
• Who has the burden of proving payment?
o Burden of proof – sino yung magpapatunay
o Creditor will prove that the obligation exist
o In the ordinary force of things, yung mga
nangungutang nga nagtatago, most of them
would not admit na may utang sila. So tha
creditor has the burden of proving that the
obligation exists.
• Ano ang kailangang patunayan ng debtor?
o The obligation is already extinguished
o This is why payment is an affirmative
defense
o Pag sinabi ng creditor na may utang yung
debtor, ang pinakamabisang depensa ng
debtor ay payment (valid payment). If the
debtor could prove a valid payment,
madidismiss na yung kaso.
ARTICLE 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.
• If you've mostly done your duty as agreed, and
you've done it honestly, you can get most of what
you're owed, except for any damages the other
person suffered.
• This is an exception to integrity
• EXAMPLE: Credit card bill, ang total is 1,000.01
pesos, you paid the bill pero di mo napansin yung 1
centavo, since credit card companies are strict when
it comes to late payment, underpayment, etc., kahit
1 centavo lang kulang that is already considered
underpayment. Because of this, you were penalized
with a finance charge of 3,000 pesos. Ang pwedeng
pang defense dito para ipareverse yung finance
charge, you can say that you have substantially
complied in good faith kasi kaya mong bayaran yung
1,000 tapos yung 1 centavo di mo kaya bayaran?
ARTICLE 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
• When the person you owe something to (obligee)
says it's okay to complete a task even if it's not done
perfectly, and they don't complain about it, then
you've met your obligation completely.
• Waiver or principle of estopel
• EXAMPLE: 1,000 yung utang ni Trisha sayo, ang
binayad nya lang 100, tinanggap mo naman di ka
nagprotesta, walang violation of integrity kasi waiver
na kasi alam mo naman na incomplete yung payment
kaya lang tinanggap mo parin di ka nag object. Di ka
pwede magreklamo later on na kulang yung binayad
nya dapat agad mo sabihin na kulang bayad nya
ARTICLE 1236 knowledge and consent si debtor, the third
THE CREDITOR IS NOT BOUND TO ACCEPT PAYMENT OR person or stranger is entitled to full
PERFORMANCE BY A THIRD PERSON WHO HAS NO INTEREST reimbursement and subrogation (the payer
IN THE FULFILLMENT OF THE OBLIGATION, UNLESS THERE IS steps in the shoes of the creditor). If it is
A STIPULATION TO THE CONTRARY made without the debtor’s knowledge and
consent, beneficial reimbursement lang kasi
WHOEVER PAYS FOR ANOTHER MAY DEMAND FROM THE possible na may knowledge si debtor pero
DEBTOR WHAT HE HAS PAID, EXCEPT THAT IF HE PAID hindi sya pumayag.
WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF THE o EXAMPLE: Selena obtained a loan from her
DEBTOR, HE CAN RECOVER ONLY INSOFAR AS THE PAYMENT friend Hailey for 10 million pesos, it was
HAS BEEN BENEFICIAL TO THE DEBTOR Justin, Selena’s ex-boyfriend who paid for it
• The person you owe money to (creditor) doesn't even there’s no prior agreement as to who
have to accept payment from someone who has no can pay. The effect of Justin’s payment, first
stake in the debt, unless there's an agreement saying you need to qualify if it is with or without
otherwise. consent. Assuming that the payment was
• If you pay on behalf of someone else, you can ask the made with the consent of Selena, Justin’s
person you paid to reimburse you. But, if you paid rights is full reimbursement, kailangan
without their knowledge or against their wishes, you ireimburse ni Selena si Justin ng 10 million
can only get your money back if it benefited them. pesos, and also subrogation wherein Justin
• Correlated with Article 1237 steps into the shoes of Hailey. Kunware
binayaran na nga ni Justin with consent, ibig
• Who is obliged to pay or perform the obligation?
sabihin pwede nang singilin ni Justin si
o Debtor
Selena because he already stepped into the
o Any person who has interest in the
shoes of Hailey, si Justin na yung bagong
obligation – guarantors or sureties
creditor ni Selena.
o EXAMPLE: Guarantor (solidary obligation if
o If there is no consent: Nag advance
di na nakapagbayad ng utang) ka ng loan ni
payment ng 1 million si Selena kay Hailey
Trisha, if she’s unable to pay, ikaw yung
tapos si Justin binayaran si Hailey ng 10
hahabulin. Pag surety (solidary obligation
million, ang pwede nalang makuha ni Justin
magbayad or hindi ng utang pwede sya
kay Selena ay 9 million pesos kasi beneficial
habulin), if Trisha’s unwilling to pay,
reimbursement na, may unjust enrichment
balasubas ka daw beh
dito. Para marecover ni Justin yung 1
o Third person who has no interest in the
million, kay Hailey nya iccollect on the
obligation when there is a stipulation that
ground of unjust enrichment
he can pay
o Assuming that this is a secured loan,
o EXAMPLE: Mortgagor and pledgor, the
minortgage ni Selena yung bahay at lupa
principal debtor can be different from a
nya to secure the 10 million peso loan,
mortgagor. Maglloan ka sa bank worth 10
Justin can foreclose the property if he has
million pesos, sabi ng bangko need nila ng
Selena’s consent to the payment (he is now
collateral. Dahil newbie ka palang, kunware
subrogated to the rights of Hailey). If there
ngayon ka palang nagging employed sabi ng
is no consent, wala syang marerecover, he
bangko wala ka pang magandang credit
cannot foreclose the property kasi ang right
standing saan ka kukuha ng pambayad mo?
lang ni Justin ay beneficial reimbursement.
You need a security for the loan, ang una
lagging nilalapitan ay parents (mortgagor
ARTICLE 1237
sila ikaw yung debtor) so yung naimpundar
WHOEVER PAYS ON BEHALF OF THE DEBTOR WITHOUT THE
nilang bahay at lupa yun yung gagamitin
KNOWLEDGE OR AGAINST THE WILL OF THE LATTER,
mong security for loan (you don’t own the
CANNOT COMPEL THE CREDITOR TO SUBROGATE HIM IN HIS
house and lot pero pwedeng isangla, ang
RIGHTS, SUCH AS THOSE ARISING FROM A MORTGAGE,
magsasangla ay yung parents) tawag dito ay
GUARANTY, OR PENALTY
accommodation mortgage. Pag di ka
nagbayad yung ifforeclose ay yung property • If you pay a debt for someone without their consent
ng parents mo as pambayad sa utang mo. or knowledge, you can't force the creditor to give
May stipulation sa contract of mortgage you the same rights the debtor had, like those
that they should pay to avoid the related to a mortgage, guarantee, or penalty.
foreclosure of the mortgage • Article 1236
▪ Pledgor nagsasangla sa pawnshop
• What if a third person or a stranger who do not fall
under the three kinds of persons who can make
payment pays the obligation? What are the effects?
o You need to qualify: may knowledge in
consent ba si debtor or wala? If may
ARTICLE 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 DEBTOR’S CONSENT.
BUT THE PAYMENT IS IN ANY CASE VALID AS TO THE DEBTOR
WHO HAS ACCEPTED IT.
• A payment made by a third party without the
expectation of reimbursement is considered a
donation, and the debtor's consent is required.
However, if the debtor accepts the payment, it is
valid in any case.
• Formal requirements of donation:
o As a general rule, should be written,
otherwise it is void
o It must be accepted by the recipient or the
donee. Walang donation kapag di inaccept
yun. Kailangan iaccept para magkaron ng
donation because under the law, nobody is
compelled to accept the generosity of
another
o EXAMPLE: Binigyan ka ng regalo, hindi ka
required tanggapin lahat ng regalo na
ibibigay sayo.
o EXAMPLE: Binayaran ni Justin yung utang ni
Selena, tinanggap naman ni Hailey, kaya
lang tumanggi si Selena sabi nya di nya
narerecognize kasi di sya inutusan na
magbayad, the effect of payment is even
though Selena did not recognize such
payment, it is still valid as to the creditor
who has accepted it. Kung tinanggpa ni
Hailey yung bayad, valid parin yung
payment and obligation is extinguished.
Hindi na pwedeng singilin ni Hailey si Selena.
Ang Karapatan ni Justin (1237), he can claim
beneficial reimbursement, since donation
sya pwedeng kalimutan nalang ni Justin
yung pagsingil kay Selena pero kung mapilit
si Selena pwede nya parin bayaran si Justin.
ARTICLE 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 ARTICLE 1427
UNDER THE TITLE ON “NATURAL OBLIGATIONS”
• If you owe someone something, and someone else
tries to pay on your behalf but doesn't have the right
to give away that thing, their payment won't count,
unless Article 1427 about "natural obligations"
applies.
• Free disposal – free from liens and encumbrances
(hindi sya nakamortgage)
• Capacity to alienate – parties capacitated to dispose
the thing (not minors, deaf, mutes, insane, they are
of sound mind and of judgement)
• You cannot dispose something which you do not own
• EXAMPLE: May mga ari-arian yung parents mo, tapos
binenta mo, you do not have the right to do that
because you do not own the things yet
• 1427 – not effective but repealed
o Anyone below 18 are minors, if you are 18+
you are emancipated
ARTICLE 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 should be given to the person for whom the
obligation was established, their legal successor, or
someone authorized to receive it.
• To whom shall payment be made?
o The creditor
o Successor in interest
o Authorized by the creditor to receive
payment
o Authorized by law (guardian, liquidator,
executor, administrators of estate)
o Guardian as to ward – minors, si guardian
muna ang tatangap ng payment
o Liquidator – may mga business na
nabankrupt so nilliquidate na yung assets
o Executor or administrator of the estate –
pag estate ang pinaguusapan may namatay,
kunware maraming possession si deceased
person, merong iaappoint na executor or
administrator of estate tapos sakanya muna
magbabayad
• If payment was made other than those enumerated,
obligation is not extinguished, even if the debtor
acted in good faith. This is not an excuse for wrong
payment
• Without any prejudice of the Art. 1241 of the NCC,
pag nagbayad kayo sa maling tao, hindi
maeextinguish yung obligation nyo, it’s important to
know kung kanino dapat mag bayad
ARTICLE 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 TO A THIRD PERSON SHALL ALSO BE VALID
INSOFAR AS IT HAS REBOUNDED TO THE BENEFIT OF THE
CREDITOR. SUCH BENEFIT TO THE CREDITOR NEED NOT TO
BE PROVED IN THE FOLLOWING:
(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
• Payment to someone who can't manage their
property is valid if they've kept what was given to
them or if the payment has been beneficial to them.
Payment to a third person is also valid if it benefits
the creditor. The benefit doesn't need proof in the
following cases:
 o If the third person later acquires the
creditor's rights.
o If the creditor approves the payment to the
third person.
o If the creditor's actions led the debtor to
believe the third person could receive the
payment.
PAYMENT MADE TO INCAPACITATED CREDITOR
• Minors, insane, deaf, and mutes
• Wala silang capacity to give consent
• Payment only becomes valid if
o He has kept the thing delivered
o Insofar the payment has been beneficial to
him
o EXAMPLE: Selena owes Hailey 10 million
pesos, nung nakaluwagluwag si Selena,
binayaran nya agad yung 10 million pesos na
loan by depositing the payment into Hailey’s
bank account. However, Selena
subsequently discovered that Hailey has
already been confined in mental hospital
due to drug addiction.
o The effect of Hailey’s insanity to the
obligation is that the obligation is
extinguished because Hailey has kept the
thing delivered by the deposit of the
payment into the bank account. However, if
somebody withdraws 500,000 pesos from
Hailey’s atm account during the period of
insanity, the obligation is extinguished up to
500,000 pesos only because that is the only
amount Hailey is presumed to have
benefited from the payment.
o Selena has the burden of proof that Hailey
has benefited such amount from the
payment. Pwedeng sabihin ni Selena na
kaya nagwithdraw ng pera kasi pinambayad
ng bill sa mental hospital or sa medication ni
Hailey
o Intact – bago magbayad kailangan alamin
muna ni debtor kung anon a yung capacity
nung creditor to accept payment
o If nagbayad si Selena prior to the insanity of
Hailey, valid yung payment
o May problem lang if nagbayad si Selena
during the period of Hailey’s insanity
PAYMENT MADE BY INCAPACITATED DEBTOR
• Yung minor nagcontract ng loan or nag enter into the
transaction, this is not valid as a general rule except
for purchase of necessaries (law on sales)
o EXAMPLE: A 17 year old student bought
school supplies from national bookstore,
hindi pwedeng sabihin ni minor na void
yung payment because that is a purchase of
necessaries kailangan yun para sa kanyang
schooling. He still needs to pay national
bookstore even if he is incapacitated
(purchase of necessaries) this is an
exception to the rule
PAYMENT TO UNAUTHORIZED PERSON
• Kapag nagbayad sa maling tao, obligation is not
extinguished.
• Exceptions to the rule:
o If it is redounded to the benefit of the
creditor
▪ Exception to the exception:
Payment will still be valid even if it
did not redounded to the benefit of
the creditor
▪ If the third person later acquires
the creditor's rights.
▪ EXAMPLE: May utang si Selena na
10 milion pesos kay Hailey, instead
of paying Hailey, Selena paid Justin
who is a common law spouse
(nagsasama sa loob ng isang
bubong pero hindi kasal) of Hailey,
later on they parted ways, and
Justin acquired all the properties
and rights of Hailey. The effect is
payment to Justin shall be valid
because he already acquired all the
rights and properties of Hailey so
kasama na yun.
o If the creditor ratifies the payment to the
third person.
▪ Ratification – nagbayad sa maling
tao pero sabi ni Hailey okay nay un
inaacknowledge nya yung payment
▪ Obligation is extinguished
o Payment in good faith (Art. 1242)
▪ Selena obtained an equipment
from Hailey, to avoid
inconvenience, Hailey usually sends
her agent Justin to collect payment
to Selena. It so happened that
Justin has already been dismissed
from Hailey’s company because of
company theft but Hailey failed to
inform all her customers (di sya
nagpublic notice). One day, Justin
still went to Selena’s house to
collect payment tapos nagbayad si
Selena. The effect of such payment
is that the obligation is
extinguished because payment was
made in good faith.
▪ If may notice na tas nagbayad
parin, the obligation subsists
because unauthorized payment na
sya.
ARTICLE 1242 ▪ Once the bank received the order
PAYMENT MADE IN GOOD FAITH TO ANY PERSON IN of garnishment, it shall no longer
POSSESSION OF THE CREDIT SHALL RELEASE THE DEBTOR be allowed to release the money to
• If you make a payment in good faith to anyone who Justin’s company kahit na sila ang
has the credit or claim, it frees the debtor from their may ari ng pera kasi the garnished
obligation. asset shall be under custodia legis
• Possession of credit vs. Instrument of credit or legal custody. Kahit magpumilit
o Instrument of credit – check, promissory yung company ni Justin iwithdraw
notes, evidence of indebtedness or payment yung pera, hindi na nya magagawa.
o Possession of credit – Selena pays Hailey a Nakafreeze na yung pera nya in
promissory note which is payable to bearer. favor of the ex labor union
The obligation is extinguished because
Hailey is both the possessor of the credit
and the instrument of the credit, Payable to
bearer kahit sinong makapulot non
pwedeng ipapalit. Money is a bearer
instrument, anybody who picks it up already
owns it, pwede nyang angkinin. Unlike check
which is only payable to you kahit mapulot
ng iba hindi nya maiencash.
o Pag payable to bearer yung isang negotiable
instrument (check or promissory note) the
creditor becomes the possessor of the credit
or the instrument of credit.
o If the promissory note or check is payable to
a particular person, the obligation is not
extinguished because the creditor is just a
possessor of the instrument.

ARTICLE 1243
PAYMENT MADE TO THE CREDITOR BY THE DEBTOR AFTER
THE LATTER HAS BEEN JUDICIALLY ORDERED TO RETAIN THE
DEBT SHALL NOT BE VALID
• A payment from the debtor to the creditor, after a
court has ordered the debtor to keep the debt, is not
valid.
• Garnishment
o A specie of attachment for reaching credits
belonging to the judgement debtor and
owing to him from a stranger to the
litigation
o A warning to the garnishee not to pay or
deliver the judgement debtor’s money or
effects in his possession or control to the
said debtor and to pay or deliver the same
to the judgement creditor to satisfy the
judgement
▪ Ex labor union won an unfair
practice case against Justin’s
company, in order to execute the
monetary awards (100 million
pesos) the labor union can go after
the assets of Justin’s company
including bank deposit (file ng
petition for garnishment with
national labor relation commission)
if found to be sufficient
magrerelease si NLRC ng order of
garnishment which the sheriff shall
serve upon the bank.