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EXTINGUISHMENT
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OF OBLIGATION
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Art. 1231

Art. 1231 of the Civil Code provides for the modes of Extinguishment of an Obligation, to wit:

1. By Payment or performance

2. By loss of the thing due

3. By condonation or remission of the debt

4. By confussion or merger of the rights of creditor and debtor

5. By compensation

6. By novation

7. Other causes of extinguishment, such as annulment, rescission, fulfillment of a resolutory

condition and prescription.
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Payment or Performance

Payment or performance means the delivery of money or fulfillment of an

obligation. (Art. 1232)

Example:

A is indebted to X the amount of 1M, payable on Jan. 1, 2022.

The obligation of A is to pay the sum of money to X on Jan. 1, 2022.

If A pays the said amount to X on Jan. 1, 2022, his obligation with the latter is
deemed extinguished by payment or performance.
 z When is an obligation deemed PAID or
PERFORMED
It is deemed to have been paid when the debtor has COMPLETELY delivered the
thing which he had obligated himself to deliver.

Ex: A is indebted to X for the amount of 1M with an interest of 6%, payable on Jan. 1,
2022.

To extinguish the obligation of A, he must not only pay for the principal amount of 1M,
but also the interest agreed upon therein.

It is deemed to have been performed when the obligor has COMPLETELY rendered
the service which he had obligated himself to perform.

Ex. A agreed to build the house of X and to fully furnish the same.

To extinguish said obligation, it is not enough for A to build the house, he must also
fully furnish the same.

(Art. 1233)
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Partial Performance (Art. 1235)

If the creditor accepts the performance knowing its incompleteness or irregularity,

and WITHOUT expressing any protest or objection, the obligation is deemed fully
complied with.

Ex:

A agreed to build the house of X and to fully furnish the same. X on the other hand
shall pay the entire amount after the house was fully furnished.

A turned over the house, unfurnished to X, the latter fully paid the same without
any dissent to it being unfurnished.

In this case, the obligation of A is deemed COMPLETELY PERFORMED.

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Partial performance (Art. 1234)
As a rule, COMPLETE performance is required before an obligation may be
extinguished. However, partial performance in good faith, gives the debtor the right
to recover as though there had been a strict and complete fulfillment, less damages
suffered by the creditor.

Ex.

A agreed to build the house of X and to fully furnish the same. X on the other hand
shall pay the entire amount after the house was fully furnished.

A was able to finish the house, unfurnished due to pandemic.

A in this case, may collect to X, the amount equivalent to the value of the house built,
less damages the latter may have incurred.
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Who may PAY the obligation

General Rule:

The DEBTOR or any of his representative shall pay for the obligation.

Basis – Art. 1236. (par. 1) 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 stipulation to the contrary.
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Payment or Performance made by a
third person
With the Without the Payment made
Knowledge of the knowledge of the out of pure
Debtor Debtor generosity,
without any
intention to be
reimbursed.
2nd par. Art. 1236 May demand May demand Art. 1238 It must be
reimbursement reimbursement accepted or
for what he has only those which consented by the
paid is beneficial to debtor. In any
the debtor case, the same is
valid as to
creditor who
accepted it.
Art. 1237 May compel the May not compel
creditor to the creditor to
subrogate him in such subrogation
his rights
 z Example:
A is indebted to X for 1M. Property of A
was put in Mortgage to secure such
indebtedness
With knowledge of the debtor:

Lets say Pedro paid the amount of 1M to X, and was accepted by the latter.

-> Pedro may demand reimbursement for the entire amount of 1M to A.

-> Pedro may also demand X for the subrogation of the latter’s right over the
Property of A, subject of the mortage.

-> In effect, Pedro acquires all of the rights of X over the property, such as
foreclosure in case of non-payment.
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Example:
A is indebted to X for 1M. Property of A was
put in Mortgage to secure such indebtedness
Without the knowledge or consent of the debtor:

Lets say Pedro paid for the amount of 1M to X and was accepted by the latter.
However, A have made partial payments in the amount of 500K.

-> Pedro may only demand reimbursement the amount of 500k to A, such
amount inured to the benefit of A.

-> Pedro may not compel X for the subrogation of his rights over the property
mortgaged by A.
 z Example:
A is indebted to X for 1M. Property of A was
put in Mortgage to secure such indebtedness

Pedro paid for the entire amount of 1M to X, without any intention of

reimbursement.

-> A must consent or accepts such gratuity, as it is in the form of a donation

-> such payment is valid on the part of X and the obligation is deemed
extinguished regardless of it being consented or acknowledged by A.
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Art. 1239:

The payor must have the LEGAL CAPACITY to make such payment.

The Payor must have FREE DISPOSAL of the thing due and CAPACITY to
ALIENATE it to render the payment valid.

This means that a minor, insane or persons punished with civil interdiction has no
capacity to make a valid payment.
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What if the Creditor has no Capacity to
accept the payment?

General Rule:

Payment is invalid

Exception:

1. If the Creditor kept the thing delivered

2. If it has been beneficial to the Creditor

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To whom PAYMENT shall be made?

1. The person in whose favor the obligation has been constituted;

2. His successor in interest

3. Any person authorized to receive it.

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Payment made to UNAUTHORIZED
PERSONS
General Rule:

Payment made to a person other than the enumeration shall NOT be valid.

Exception:

1. Payment made to third person, provided that it redounded to the benefit of the creditor.

Example:

Payment made to the Creditor of the original Creditor.

2. Payment made to the possessor of the credit, provided it was made in goodfaith.

Example:

Payment made to a third person who bears a document purporting to be an assignment of credit executed
by the original Creditor.
Conclusive
z presumption that Payment made to third
person redounded to the benefit of the Creditor

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.

Art. 1241 (2nd par)

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What must be Paid?

Obligation to Give Obligations Obligations not to

to do do

Determinate object The Creditor is not obliged to accept

or receive a different one,
regardless of its value No substitution is allowed
AGAINST the Creditor’s will

Generic object The creditor may be compelled to
accept any object belonging to the
same genus.
The creditor cannot demand a
thing of superior quality.
The debtor cannot deliver a
thing of Inferior quality
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General Rule:

In obligation to give, the creditor may not be compelled to receive any thing other
than the object of the obligation.

Qualification:

Dacion in payment (Dacion en pago) – the transmission of ownership of a thing

by the debtor to the creditor as an accepted equivalent of the performance of the
obligation.

i.e. - When the debtor who is indebted for a certain sum of money, may pay by
alienating his property in favor of the creditor
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Payment Valid

Money If in currency stipulated. Or Legal

tender of the Philippines

Promissory Note If Cashed

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Legal Tender

Such currency which may be used for the payment of all debts,
whether public or private.
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Payment of coins

 For P1 to P5 denominations, they must not exceed P1,000

 For 1, 5, 10 or 25 cents must not exceed P100 in total.

BSP Circular No. 537, Series of 2006

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Payment in case of EXTRAORDINARY
Inflation or Deflation
 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.

i.e.

On 2015 A obtained a loan to X amounting to 1M and promises to pay its equivalent in SLP.

Lets assume that on 2015, SLP is valued at 1=1.

On 2016, the value of SLP ballooned to1=10 pesos.

The valuation of SLP on 2015 shall be used.

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Requisites to determine
EXTRAORDINARY Inflation/Deflation

1. There must be a decrease or increase in the purchasing power

of the currency which is unusual or beyond the common
fluctuation in the value of said currency;

2. Such decrease or increase could not have been reasonably

foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation.
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WHERE Payment shall be made?

1. Place designated in the obligation

2. In the absence thereof, and the object of the obligation is a

determinate thing, payment shall be made wherever the thing
might be at the moment the obligation was constituted

3. In any other cases, at the domicile of the debtor. If he changes

his domicile in bad faith or after incurring delay, additional
expenses shall be borne by him.
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APPLICATION OF PAYMENT
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Defined

 Designation of debt to which the payment must be applied when

the debtor has several obligations of the same kind in favor of
the same creditor.
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REQUISITES

1. There must only be one creditor and only one debtor

2. There must be two or more debts of the same kind

3. All of the debts must be due

4. The amount paid must not be sufficient to cover the total amount of all the
debts
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Who may choose where payment shall
be applied
General Rule:

Election is given to the Debtor

Exception:

1. If there be a stipulation the contrary

2. To the party for whose benefit the term has been constituted
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SUMMARY of the RULE in Application
of Payment

1. If there is an interest, preference is given to the application for

payment of the interest.

2. Application shall be made to the debt which is most

ONEROUS/burdensome to the debtor.

3. If all debts are of the same nature and burden, payment is applied
proportionately to all of them.
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Example

Facts:

1st debt - A obtained a loan to X amounting to 1M which bears 6% interest per

annum

2nd debt - A again obtained a loan to X amounting to 2M which bears no

interest.

Let us say A is ready to pay 300K.

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Where will the 300K be applied?

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300K shall be applied to the first debt as it is more burdensome to the debtor
because it bears interest.

Note:

Interest bearing obligation is more burdensome to the debtor, as interest must first
be satisfied before application be applied to the principal amount.
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Facts:

1st debt - A obtained a loan to X amounting to 1M which bears 6% interest per

annum

2nd debt - A again obtained a loan to X amounting to 2M which bears also bears
6% interest.

Let us say A is ready to pay 300K.

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Where will the 300K be applied?

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300K shall be applied to the second debt, as it is more burdensome to the debtor.

Note:

6% of 2M is greater than 6% of 1M
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Facts:

1st debt - A obtained a loan to X amounting to 1M which bears no interest

2nd debt - A again obtained a loan to X amounting to 2M which bears no interest

Let us say A is ready to pay 300K.

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Where will the 300K be applied?

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300K shall be applied proportionately, as both debt is of the same

burden to the debtor.

100K applied to the 1st debt

200K to the 2nd debt

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When debts are not of same burden

1. Where there are various debts which are due and they were incurred at different dates, the
oldest are more onerous to the debtor than the more recent ones.

2. Where one debt bears interest and the other does not, even if the latter was incurred at an
earlier date, the first is more onerous to the debtor. As between two debts which bear interest, the
debt with a higher rate of interest is more onerous to the debtor.

3. Where one debt is secured and the other is not, the first is more onerous to the debtor.
However, “where in a bond the debtor and surety have bound themselves solidarily, but limiting the
liability of the surety to a lesser amount than that due the principal debtor, any such payment as
the latter may have made on account of such obligation must be applied first to the unsecured
portion of the debt, for, as regards the principal debtor, the obligation is more onerous as to the
amount not secured.’’

4. Where the debtor is bound as principal in one obligation and as guarantor or surety in another,
the former is more onerous to him.

5. When the debtor is bound as a solidary debtor in one obligation and as the sole debtor in
another, the former is more onerous to him.
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6. Within a solidary obligation, the share which corresponds to a solidary debtor

would be most onerous to him.

7. Where one obligation is for indemnity and the other is by way of penalty, the
former is more onerous to the debtor.

8. Where one debt is liquidated and the other is not, the former is more onerous to
the debtor.
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PAYMENT BY CESSION
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Defined

A special form of payment whereby the debtor abandons all of his property for
the benefit of his creditors in order that from the proceeds thereof the latter may
obtain payment of their credits
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REQUISITES

1. Plurality of debts

2. Partial or relative insolvency of the debtor

3. Acceptance of the cession by the creditors

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Dacion in Payment VS. Payment by Cession

Dacion in Payment Payment by Cession

Number of Creditors There may be only one Plurality of creditor is
creditor essential
Solvency of the debtor The debtor is not Debtor is in state of
necessary in financial partial or relative
difficulty insolvency
Object A thing equivalent to All of the property of
the performance of the debtor
obligation
Effect Extinguishes the Release the debtor for
obligation the net proceeds of the
things ceded or
assigned.
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Tender of Payment or Consignation

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Tender of Payment

Concept: It is the manifestation made by the debtor to the creditor of his

decision to comply immediately with his obligation.
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CONSIGNATION

Concept: It refers to the deposit of the object of the obligation in a competent

court in after the unjustifiable refusal or inability of the creditor to accept the
tender of payment.
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REQUISITES

1. There is a debt due

2. The creditor refuses to accept tender of payment or due to the

causes stated under art. 1256

3. Previous notice of consignation must have been given

4. The thing or amount had been placed at the disposal of judicial

authority

5. After valid consignation, the creditor must be notified

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CONSIGNATION

General Rule:

Tender of payment is precedent to Consignation, otherwise consignation is not

valid.
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CONSIGNATION

Exception:

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

of payment

2. The creditor is incapacitated to receive payment at the time it is

due

3. When the creditor, without justifiable cause, refuses to give receipt

4. Two or more creditors claim the right to collect

5. Title of the obligation has been lost

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WITHDRAWAL

BEFORE AFTER ACCEPTANCE

ACCEPTANCE

Consent of the Creditor Not necessary Necessary

Effect Obligation remains in Obligation remains in

force force but the creditor
losses every preference
over guarantors and
sureties
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Tender of Payment VS. Consignation

Tender of Payment Consignation

Antecedent or preparatory Principal act which will
act produce the effect of
payment
Extrajudicial Judicial
In itself, is not a mode of Mode of Extinguishment
extinguishment
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Loss of the Thing Due

Concept – Lost of the thing due means that the thing which constitutes the object
of the obligation PERISHES or goes out of commerce of man or disappears in
such a way that its existence is unknow or it cannot be recovered.
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REQUISITES of LOSS as a Mode of
Extinguishment
1. The thing lost must be determinate

2. The thing is lost without any fault of the debtor

3. The thing is lost before the debtor incurred in delay

-Art. 1262 (par. 1)

Note:

If the thing is lost through the fault of the debtor or after he has already incurred
delay, the obligation is NOT extinguished but converted into indemnity for
damages.
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GENERAL RULE:

Lost of the thing due, without the fault of the debtor or before he incurred
delay, EXTINGUISHES the obligation.
 z Exception

1. When by law, the debtor is liable even for fortuitous events (1174)

2. When it is stipulated that the debtor is liable even for fortuitous events

3. When the obligation requires the assumption of risk

4. When the lost was partly due to debtor’s fault

5. When the lost of the thing occurs after the debtor has incurred in delay

6. When the debtor promised to deliver the same thing to two or more persons
who do not have the same interest

7. When the obligation to deliver arises from a criminal offense

8. When the object is generic

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Disputable Presumption of Fault

If the object of a determinate obligation is lost while in the possession of the

debtor, there arises a disputable presumption that the loss was due to his fault.

(Art. 1265)

NOTE:

This presumption will not apply in case of earthquake, flood, storm or other
natural calamity because in case of a natural calamity, lack of fault is more likely.
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Impossibility of Performance in
obligation to do
The debtor in obligations to do shall be released therein when:

1. The prestation becomes legally impossible (i.e. a law prohibiting said conduct),
and

2. The prestation becomes physically impossible (i.e. Death of the debtor

-Art. 1266

Note:

It must be understood that the impossibility is without the fault of the debtor.
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Relative Impossibility

When the service has become so difficult as to be manifestly

beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part.

Art. 1267
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Labayen vs Talisay-Silay Milling Co.

If a party charges himself with an obligation possible to be

performed, he must abide by it unless performance is rendered
impossible by the act of God, the law, or the party. A showing of
mere inconvenience, unexpected impediments, or increased
expenses is not enough
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Obligation arising from Criminal Offense

Gen. Rule

The debtor shall not be released from any liable due to the loss of the thing which
is the proceeds of an offense.

i.e. A thief is obliged to return the object unlawfully taken to the owner. The former
cannot be exonerated from any liability by reason of lost thereof.

Exception

When the creditor refused to accept it without justification.

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Questions
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Facts:

X bought a car to A. X demanded for the delivery of the said car, however, A failed
to deliver said car.

At the time A is to deliver said car, the same was raged by fire.
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By such lost, is the obligation of A

extinguished?
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No, the lost occurred after A incurred

delay. (Art. 1262)
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FACTS:

X borrowed 1K to A.

On his way to A to pay said loan, X was rob.

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Is the obligation of X extinguished by

reason of loss of the thing?
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No. Genus never perish

-Art. 1263
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Effect of PARTIAL loss

If the thing partially lost is of such importance that it would be tantamount to a

complete loss or destruction, the obligation is deemed extinguished.

Note:

Considered lost after determination of the courts.

-Art. 1264
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CONDONATION OR REMISSION OF
THE DEBT
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Definition

It is an act of liberality by virtue of which the creditor, without

receiving any price or equivalent, renounces the enforcement of the
obligation, as a result of which it is extinguished in its entirety or in
that part or aspect of the same to which the remission refers.
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REQUISITES

1. It must be gratuitous (Art. 1270)

2. It must be accepted by the debtor (Art. 1270)

3. The obligation must be demandable

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KINDS

1. As to form –

EXPRESS – When it is made in accordance with the formalities

prescribed by law for donations

IMPLIED – When it can be deduced from the acts of the creditor

that he intends to condone the obligation.
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2. As to extent

TOTAL or PARTIAL

3. As to constitution

INTER VIVOS or MORTIS CAUSA

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Example of TACIT or IMPLIED
REMISSION

1. Delivery of a private document evidencing a credit, made voluntarily by the

creditor to the debtor (Art. 1271)

2. Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed to have been delivered voluntarily
by the creditor. (Art. 1272)

3. Renunciation of the principal shall extinguish the accessory. (Art. 1273)

4. In pledge, if the thing pledge after the same was delivered to the creditor, is
found to be in the possession of the debtor or third person who owns the thing.

(Art. 1274)
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CONFUSION OR MERGER OF
RIGHTS
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DEFINED

Confusion is defined as the merger of the character of creditor and

debtor in one and the same person by which the obligation is
extinguished
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REQUISITES

1. The merger of the characters of creditor and debtor must be in

the same person

2. It must take place in the person of either the principal creditor

or the principal debtor

3. It must be complete and definite

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Effect upon Accessory Obligation

Confusion or merger between principal creditor and principal debtor

extinguishes the accessory obligation.

Confusion or merger between person other that above-stated will

not extinguish the principal obligation.

(Art. 1276)