OF AN OBLIGATION

Art. 1231. Obligations are Ang mga obligasyon ay mawawala o

extinguished: matatapos kapag nangyari na ang mga
sumusunod na bagay:
(1) By payment or performance: 1) Sa pagbabayad ng pag gawa o pag ganap
o performans.
(2) By the loss of the thing due:
2) Sa pagkawala ng bagay ng kailangan
(3) By the condonation or remission ibayad o ibigay.
of the debt;
3) Sa pagbibigay ng kapatawaran o ng
(4) By the confusion or merger of the pagbabalewala ng utang.
rights of creditor and debtor; 4) Sa paglalagom ng mga karapatan ng
(5) By compensation; nagpautang at umutang.
(6) By novation. 5) Sa pagbabayad ng utang.
6) Sa pagpapalit ng panibagong obligasyon.
Other causes of extinguishment Ang mga ibang dahilan ng pagkatapos
of obligations, such as annulment, o pagkawala ng obligasyon katulad ng
rescission, fulfillment of a resolutory annulment, rescission, at pagsagawa o
condition, and prescription, are katuparan ng resolutory condition, and
governed elsewhere in this Code. prescription, ay pinamamahalaan ng ibang
artikulo mula sa Code na ito.
 I. PAYMENT OR PERFORMANCE
Art. 1232. Payment means not only the
delivery of money but also the performance,
in any other manner, of an 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.
Concept of Payment
- Payment is the fulfillment of the prestation due.
> Paying through giving the money or performing the
obligation
- It is a juridical act which is voluntary, licit, and made with
the intent to extinguish an obligation.

Requisites of a valid payment:

1.Parties (debtor and creditor)
2.The thing to be paid
3.Time, place, and manner of
payment
 PAYMENT

1. Integrity of prestation – the thing or service must be

completely delivered or paid
> partial payment will not extinguish the obligation

EX: X was to deliver 20 bottles of pure orange juice to Y. If Y

delivered only 15 bottles of juice, there is no payment made by
X. Y can refuse to pay for the 15 bottles delivered by X.

2. Identity of prestation – the very prestation due must be

delivered or performed

EX: If X delivered powdered orange juice and not to pure orange

juice, there is no payment made by X.
 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.
SUBSTANTIAL PERFORMANCE
- There must have been an attempt in good faith to perform, without
any willful or intentional departure therefrom.
- Art. 1234 is an exception to the rule stated on Art. 1233

EX: X was to deliver 10 kilos of pork to Y. X wanted to comply with his

obligation but was only able to deliver 8 kilos of pork because there
was a shortage due to swine flu.
This can be considered as a complete delivery on the part of X and ask
for the price of the 8 kilos of pork because he acted in good faith.
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.
Waiver of Defect in Performance
- To constitute a waiver, there must be an intentional
relinquishment of a known right
- If the creditor (1) accepts the defective performance
of the obligation (2) with actual knowledge of the
incompleteness or the defect, it is considered
complete payment (obligation is extinguished)
- This is also an exception to Art. 1233
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.

WHO CAN THE CREDITOR ACCEPT PAYMENT FROM?

1. The debtor
2. Any person who HAS AN INTEREST in the obligation
3. A third person who HAS NO INTEREST in the obligation if there
is a stipulation that he can make the payment
 PAYMENT MADE BY A THIRD PERSON

1. If no knowledge or against the will of the debtor

- The payer can recover from the debtor only insofar as the payment
has been beneficial to him. (2nd par, Art, 1236)

2. If with the knowledge of the debtor

- The payer shall have the rights of reimbursement and subrogation
(Art. 1237)

EX: X owes Y P5,000. Z, a third person (stranger), can offer to pay Y

on behalf ox X.
Y may or may not accept the payment of Z.
If Y accepts payment of Z, Z can recover from X depending if the
payment was done with or without the knowledge of X, the debtor.
a. No knowledge of X – If Z paid P5,000 to Y, he can ask
reimbursement from X for P5,000.
- If X paid P1,000 already to Y, but Z still paid
P5,000 to Y, he can only ask reimbursement for
P4,000 from X ( because that was what was
beneficial to him)

b. With knowledge of X – In any case, if Z paid P5,000 to Y, he

can ask reimbursement for the entire P5,000
with the rights of subrogation (mortgage,
guarantee, etc)
- So even if X paid P1,000 to Y and Z paid P5,000
to Y, Z can still recover the entire P5,000 from X.
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 a mortgage,
guaranty, or penalty.

• If the payment is without the knowledge of the debtor, the

third person cannot ask for subrogation. Remember that
Art. 1236 says that the third person can only recover what
what beneficial to the debtor.

• If the payment is with the knowledge of the debtor, the third

person is entitled to SUBROGATION.
WHAT IS SUBROGATION?

- It is when the third person who pays for the debtor is put into
the shoes of the creditor.
- The third person gets the right to be reimbursed PLUS all other
rights which the creditor could have exercised either agianst
the debtor or against third persons (such as guarantors).

EX: X owes P5,000 to Y. G is the guarantor of X (ibig sabihin,

kapag hindi makabayad si X, pwede habulin ni Y si G).
Z, a third person, paid Y P5,000 with the knowledge of X.
What are the rights of Z?

Z can ask for reimbursement from X P5,000 plus subrogation.

So if X will not be able to pay Z, Z can go after G.
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.
• NOTE: When you say “a person incapacitated to
administer his property”, you mean a person who
cannot enter into contracts:
• - a minor
• - insane or demented persons or deaf-mutes who do
not know how to write

EX: X delivers money of P2,000 to Y, a minor.

Under Art. 1241, since Y is incapacitated to
administer his property, payment shall only be valid
insofar as payment has been beneficial to him.
So, if Y loses P500 of the money because of gambling,
payment shall be considered as made only to the
extent of P1,500.
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.

Dation in Payment
– the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the
performance of the obligation

EX: Mario owes Wilma P10,000. With the consent of Wilma, the
obligation can be fulfilled by delivered a cellphone instead.

If the cellphone is worth less than P10,000, it will extinguish the

obligation only to the extent of the value agreed upon. If the
parties agree that the cellphone is worth the full P10,000, then
the obligation is extinguished.
Art. 1251. Payment shall 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. Place of a person’s habitual residence

If the debtor changes his domicile in bad faith or after he has

incurred in delay, the additional expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules

of Court.
 SUBSECTION 1
APPLICATION OF PAYMENTS

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.
** Rules apply only to a person owing several debts of the same
kind to a single creditor**
Requisites for Application of Payments:
1.) 1 debtor and 1 creditor only
2.) 2 or more debts of the same kind
3.) all debts must be due
4.) amount paid by the debtor must not be sufficient to cover the total
amount of all the debts

• It is necessary that the obligations must all be due.

> Exceptions: (1) when there is a stipulation to the contrary; and (2) the
application of payment is made by the party for whose benefit the term or
period has been constituted

• It is also necessary that all the debts be for the SAME kind, generally of a
monetary character. This includes obligations which were not originally of a
monetary character, but at the time of application of payment, had been
converted into an obligation to pay damages by reason of breach or
nonperformance.
EXAMPLE

Lucio owes Alex the following:

a. P1,000 payable on June 15;

b. P2,000 payable on June 30;
c. A cellphone worth P2,000;
d. P1,500 payable on July 15.

On June 30, Lucio pays 2,000 to Alex. Which debt should it be

applied to?
Lucio can apply the debt to debt (a) or to debt (b).
He cannot apply it to debt (c) because it is NOT of the same kind.
He cannot apply it to debt (d) because it is NOT YET DUE.

If Lucio pays 1,000, he cannot apply it to debt (b) because a creditor

cannot be compelled to receive partial payment (Art. 1248)
 * NOTE: If the debtor makes a proper application of payment but the creditor refuses
to accept it because he wants to apply it to another debt, such creditor will incur in
delay

RIGHT OF DEBTOR
- the debtor has the preferential right to choose the debt to which his payment is to
be applied

* Limitations:
1. If the debtor owes two debts,one for P50 and another for P200, and he makes a
payment of P50, he cannot choose to apply it to the P200 because the creditor
cannot be compelled to accept partial payment.
2. The debtor cannot apply the payment to a debt that is not yet liquidated.
3. If there is only one obligation bearing stipulated interest, the debtor cannot apply
the payment to the capital, because the law required its application to interest
first.
4. He cannot choose a debt with a period for the benefit of the creditor, when the
period has not yet arrived.
5. When there is an agreement as to the debts which are to be paid first, the debtor
cannot vary the agreeement.
SUBSECTION 2. - Payment by Cession

Art. 1255. The debtor may cede or assign his

property to his creditors in payment of his debts. This
cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for
the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are
made between the debtor and his creditors shall be
governed by special laws.
Cession/Assignment

–Debtor abandons ALL his property in favor of the creditor so

that the latter may dispose of the property (such as a sale) in
order to apply the same to the debts.

-The initiative must come from the debtor, but it must

be accepted by the creditors in order to become
effective.

REQUISITES:
1. 2 or more creditors
2. Debtor must be partially insolvent
3. Assignment must involve ALL the properties of the debtor
4. It must be accepted by the creditors
 Dation in Payment v. Assignment
Dation in Payment
• Transfers ownership over the
thing alienated to the
creditor
• May totally extinguish the
obligation and release the
debtor
• The cession of only some
specific thing
• The transfer is only in favor of
one creditor to satisfy a debt
Assignment (Cession)
• Only the possession and
administration are
transferred to the creditors
• Only extinguishes the credits to
the extent of the amount
realized from the properties
assigned, unless otherwise
agreed upon
• Involves all the property of
the debtor
• There are various creditors
 SUBSECTION 3. - Tender of Payment and Consignation

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. Tender of payment (TOP) needed before consignation
Consignation alone shall produce the same effect in the
following cases: Cases where TOP not needed; consignation is enough
(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.
Tender of Payment
–Tender of payment is the offer to pay.

Consignation
-Consignation is the act of depositing the thing due or
placing the same under judicial authority/disposal when
the creditor refuses to accept payment without just cause.

** The tender of payment, therefore, is a preparatory act

which precedes consignation.

**The tender of payment by itself does not extinguish the

obligation, unless completed by consignation.
EXAMPLE
X owes Y a sum on money. On the due date of the obligation, X
offers to pay Y (Tender of payment) but Y refuses to accept payment
without any just reasons.

Is the obligation of X extinguished?

No, X must ALSO make a valid consignation after the tender of

payment.
• GENERAL RULE: Tender of Payment before consignation is
required only when the creditor refuses without just cause to
accept it.

* Instances when there may be consignation without valid tender

of payment:

1. Creditor is absent, unknown, or does not appear at the place

of payment. (He must have had no
legal representative)
2. Creditor is incapacitated at the time the obli falls due, or at the
time payment, or offer of payment, is made. (Also, there must have
been no legal representative)
3. Creditor, without just cause, refuses to give a receipt.
4. 2 or more persons claim the right to collect.
5. Title of the obligation has been lost.
REQUISITES OF CONSIGNATION - The debtor must show that:

1. There was a debt due

2. The consignation of the obligation was made because of
some legal cause provided in Article 1256
3. Previous notice of the consignation has been given to the
persons interested in the performance of the obligation
4. The amount or thing due was placed at the disposal of the
court
5. After the consignation had been made, the persons
interested were notified thereof
When will the obligation be extinguished?

The Obligation is extinguished when (a) creditor

claims the thing consigned, or (b) the court
declares that the consignation was properly made
 II. LOSS OF THE THING DUE
When it perishes, goes out of commerce or disappeaars
that its existence is unknown or cannot be recovered
Art. 1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be lost or
destroyed (1.) without the fault of the debtor, and (2.) before
he has incurred in delay.

When by law or stipulation, the obligor is liable even for

fortuitous events, the loss of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same
rule applies when the nature of the obligation requires the
assumption of risk.
Effects of the loss of the thing due

○ Specific (determinate)
(a) due to the fault of debtor – not extinguished;
(b) not due to the fault of debtor – extinguished

○ Generic (indeterminate) – not extinguished.

 GENERAL RULE: The loss of the determinate object by
fortuitous event extinguishes the obligation. (ART. 1174)

EXCEPTIONS:
1. When the law expressly provides that the debtor shall be
liable even if the loss is due to fortuitous events.
2. When by express stipulation the obligor is made liable even if
loss occurs through fortuitous events.
3. When the nature of the obligation requires the assumption of
risk.
4. When the fault or negligence of the debtor concurs with the
fortuitous event in causing the loss.
5. When the loss occurs after the debtor has incurred in delay.
6. When the debtor has promised to deliver the same thing to
two or more different parties.
7. When the obligation to deliver a determinate object arises
from a criminal act.
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.

** This article refers to an impossibility which arises

after the obligation has been made.
 Physical Impossibility – when the act by reason of its
nature cannot be accomplished.

 Legal Impossibility – when the act, by reason of a

subsequent law, is not allowed.

EX: D was to paint a picture for C due on June 15. On June 10, D met an
accident, as a result of which his arms were paralyzed. The obligation is
extinguished because the oblgiation od D became physically impossible.
 III. Condonation or Remission of the Debt

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.
Condonation or remission of the debt

–It is an act of liberality; it is in the nature of a donation.

(essentially a donation of the credit to the debtor)

–Not the same as renunciation because renunciation or

waiver is a unilateral act while condonation or remission
requires a bilateral act because the law requires
acceptance of the condonation by the debtor.

–Condonation may be done impliedly (in any form), or

expressly (must satisfy the requisites prescribed by law
with respect to form under the law on donation).

-Basically, the creditor is gratuitously abandoning his right

against the debtor
REQUISITES OF REMISSION/CONDONATION

1. The debt must be existing and demandable at the time

the remission is made.

2. The renunciation of the debt must be gratuitous, or

without any equivalent or consideration.

3. The debtor must accept the remission.

IV. CONFUSION OR MERGER OF RIGHTS

Art. 1275. The obligation is extinguished from the time the

characters of creditor and debtor are merged in the same
person.

Art. 1276. Merger which takes place in the person of the

principal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does not
extinguish the obligation.

Art. 1277. Confusion does not extinguish a joint obligation

except as regards the share corresponding to the creditor or
debtor in whom the two characters concur.
Confusion or merger of rights
–The characters of debtor and creditor meet in one and
the same person.

REQUISITES OF MERGER/CONFUSION

1. It must take place between the creditor and the

principal debtor.
2. The very same obligation must be involved.
3. The confusion must be total or as regards the entire
obligation.
EXAMPLE

D owes C P10,000 for which D executed a promissory note in favor of

C. C indorsed the note to E who in turn indorsed it to F. F bought
goods from the store of D. Instead of paying cash, F indorsed the
promissory note to D.

The obligation of D is extinguished by merger. It is as if D owes

himself.

C indorsed PN to E E indorsed it to F
C E F
D owes P10,000
(issued PN for C) F bought goods from D’s store;
As payment, he indorsed the note to D;
Since the note came originally came from D, the
D character of creditor and debtor are merged in
the same person
Effect of Confusion that occurs in the person of the debtor 

–If there is only one debtor and one creditor, the obligation is
automatically extinguished.

–If there is plurality of debtors, and the confusion occurs in the

person of a debtor, depends on the nature of the obligation:

○Joint obligation – what is extinguished is only the share of

that debtor in the obligation
○Solidary obligation – obligation is extinguished

–If confusion takes place in the person of the guarantor, this shall
extinguish only the contract of guaranty, but not the principal
obligation
REFERRING TO THE PREVIOUS EXAMPLE

D owes C with G as the guarantor. When there was a merger in

the characters of debtor and creditor in D, G, the guarantor,
became free from liability also.

But if C indorsed the PN to E who in turn indorsed it to G, only the

contract of guaranty between D and G are extinguished.

C indorsed PN to E E indorsed it to F
C E F
D owes P10,000
F indorsed it to G, the
(issued PN for C)
guarantor
G is the guarantor of D
So, only the contract of
D G guaranty is extinguished.
But the obligation of D
to C remains.