EXTINGUISHMENT OF

OBLIGATIONS

ARTICLE 1231 - 1304

 ARTICLE 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.
Other causes of extinguishment of obligations,
 ARTICLE 1232

Payment means not only the delivery of

money but also the performance, in any
other manner, of an obligation.
Burden of proving payment

Burden of proof is the duty of a party to

present evidence of the facts in issue necessary
to prove the truth of his claim or defense by
the amount of evidence required by law.
The debtor has the burden of showing with
legal certainty that the obligation has been
discharged by payment.
 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 to deliver a thing (including money) or
to render service is not understood to have
been paid unless the thing or service has been
completely delivered or rendered, as the case
may be.
Partial or irregular performance will not
produce the extinguishment of an obligation as
a general rule.
 EXAMPL
(1) D bound himself to pay C P10,000.00. D is giving only
E:
P9,000.00. C can refuse to accept P9,000.00 because the
fulfillment is not complete.
(2) X agreed to paint the house of Y for P50,000.00. X did not
paint the kitchen anymore and instead asked Y to pay him
P50,000.00 less the cost of painting the kitchen. Y can refuse to
pay X because the debt of Y(to deliver money) will arise only
after the debt of X (to paint the house)is completely rendered.
ARTICLE 1234

If the obligation has been substantially per-

formed in good faith, the obligor may recover
as though there had been a strict and complete
fulfillment, less damages suffered by the
obligee.
EXAMPLE:

S obliged himself to sell 1,000 bags of cement to B for a certain price.

However, despite diligent efforts on his part, S was able to deliver only 950
bags because of cement shortage. Take note that S wants to comply with his
obligation to deliver the entire 1,000 bags but he could not do so for reasons
beyond his control.

Under Article 1234, S can recover as though there had been complete delivery
less the price of the 50 bags. In other words, B cannot require S to deliver first
the remaining 50 bags as a condition to his liability for the price. He must pay
for the 950 bags and enforce his right to damages for failure of S to deliver the
difference. It is incumbent upon S, however, toexplain satisfactorily his failure
to make complete delivery.
 ARTICLE 1235.
When the obligee accepts the performance,
knowing its incompleteness or irregularity,
and without ex-pressing any protest or
objection, the obligation is deemed fully
complied with.
 Acceptance of incomplete or
irregular payment
This is so because the creditor is considered to
be in estoppel or to have waived his right to
enforce the complete or regular payment of
the obligation.
Example:
D is obliged to paint red the car of C. D painted the car but the color
bordered on maroon. C accepted the performance although it was
irregular and he did not express any protest or objection to it. In this case,
D is deemed to have fulfilled his obligation.
 ARTICLE 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.
ARTILCE 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.
1. Payment made by a third person.

The creditor cannot be compelled to accept payment from a third person

because the creditor may not have the confidence in the honesty of the third
person who might deliver a defective thing or pay with a check which may
not be honored. The following are the exceptions:

a. When there is a stipulation to that effect.

B. When the third person has an interest in the fulfillment of the
obligation (such as in the case of guarantor or co-debtor)

Example:
D obtained loan or P50,000 from C. The debt is guaranteed by
G. G, as a guarantor, may compel C to accept payment from
him for D’s debt.
2. Rights of a third person making the payment.

a. Payment without the knowledge or against the will of the debtor.

- he can recover from the debtor but only in so far as the payment was
beneficial to the latter.

- he is not entitled to the subrogated in the rights of the creditor.

Subrogation transfers tot he person surrogated the credit with all the rights
Example:
D borrowed P20,000 from C. The debt is guaranteed by G. D paid
C P5,000 leaving a balance of P15,000 on his debt. Later T, without
D’s knowledge, paid the amount of P20,000 to C believing that D
still owed that amount. T here can recover from D only the amount
of P15,000 which is the amount beneficial to D. If D cannot pay, T
cannot go after G, the guarantor because he is not entitled to be
surrogated in the rights of C. T’s remedy is to go after C to collect
the amount of P5,000 as this is a case of solutio indebiti.
b. Payment made with consent of the debtor

-He can recover from the debtor what he has paid

-He shall be entitled to be subrogated in the rights of the creditor.

Example:

D borrowed P100,000 from C. The debt is secured by a mortgage of Ds lot.

With the consent of D, T paid C P100,000. In this case, T can recover the
amount he paid from D. If D cannot pay, T can foreclose the mortgage on
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 creditor who has accepted
it. (n)
EXAMPLE:

D owes C P1,000.00. Without the intention of being reimbursed, X paid D’s

obligation. D had previously accepted X’s generosity.

In this case, D is not liable to X and his obligation to C is extinguished. But if

D did not consent to the donation, X may recover from D sincethere has been
no donation, although originally X did not intend to be reimbursed.
Nevertheless, the obligation of D to C is extinguished because the payment is
valid as to C who has accepted it.

Can D legally refuse to pay X and instead insist on paying C? No.

(see Arts. 1236, par. 2; 1237.)

 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 provisionsof
Article 1427 under the Title on “Natural
Obligations.’’
 Meaning of free disposal of thing
due
(1) Free disposal of the thing due means that the thing to be delivered
and capacity to alienate.
must not be subject to any claim or lien or encumbrance of a third

person.

(2) Capacity to alienate means that the person is not incapacitated

to enter into contracts (Arts. 1327, 1329.) and for that matter, to make a

disposition of the thing due.

 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.
Person to whom payment shall be made.

Payment shall be made to:

(a) the creditor or obligee (person in whose favor the

obligation has been constituted);

(b) his successor in interest (like an heir or assignee); or

(c) any person authorized to receive it.

ILLUSTRATIVE CASES:

1. Payment was made to a person not authorized by the seller to receive

payment.

Facts: B bought a certain electric plant from S. B paid C who was authorized
by C to look for buyers of the plant. There was no evidence that C had
authority to receive payment. S brought action to recover the price.

Issue: Is there valid payment to S?

Held: No. C was not duly authorized by S to receive payment. Where a person
in making payment solely relied upon the representation of an agent as to his
authority to receive payment, such payment is made at hisown risk and where
the agent was not so authorized, such payment is not a valid defense against
the principal. (Keeler Electric Co. vs. Rodriguez, 44Phil. 20 [1922]; Ormachea
Tin Congco vs. Trillana, 13 Phil. 194 [1907].)
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
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
 Effect of payment to an incapacitated creditor
As a general rule, payment to an incapacitated creditor is not valid. The
following are the exceptions:

a. If the incapacitated creditor has kept the thing delivered.

Example: D borrowed P10,000 from C. The debt is due after 6 months. On

the due date, D paid C P10,000 but at that time, C had already become
insane. Of the amount received by C, P6,000 was lost, while the rest was
still in C’s possession. Payment, in this case, is valid only up to P4,000.
b. Insofar as the payment has been beneficial to him.

Example:

Assume that in the preceding example, P7,000 was used by C to buy food,
while the rest was spect for his hospitalization. In this case, payment will be
valid in its entirety because C was benefited up to the full amount. But if
P7,000 was lost by C to a swindler, while the rest was spent for his
hospitalization, then payment will be laid only up to P3,000, the amount
beneficial to C.
 ARTICLE 1242

Payment made in good faith to any

person in possession of the credit
shall release the debtor.
 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.
 Article 1244

The debtor of a thing cannot compel

the creditor to receive a different
one, although the latter may be of
the same value as, or more valuable
than that which is due.
In obligations to do or not to do, an
Example:
A is obliged to give B a Jaguar car. Not having
any Jaguar car, A wants B to accept a Rolls
Royce, a more expensive car, but B refuses to
accept. Is B justified legally in refusing to
accept?
ANS.: Yes. Even if the Rolls Royce be more
valuable than the Jaguar, if B does not want
the Rolls Royce, he cannot be compelled by A
to accept it. The terms of the contract form the
Instances When Art. 1244 Does Not Apply
• (a)  in case of facultative obligations;
• (b)  in case there is another agreement resulting in either: 1) dation
in payment (Art. 1245, Civil Code); 2) or novation (Art. 1291, Civil
Code);
• (c)  in case of waiver by the creditor (expressly or impliedly).
 ARTICLE 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.
Examples
• (a)  To pay my debt of P1,000,000 in favor
of Bella, I gave her with her consent a
diamond ring instead worth P1,000,000.
• (b)  To pay off his debt, an heir assigned his
•
inheritance in an estate to his creditor.
Article 1246
When the obligation consists in the
delivery of an indeterminate or
generic thing, whose quality and
circumstances have not been stated,
the creditor cannot demand a thing
of superior quality. Neither can the
debtor deliver a thing of inferior
 Article 1247.
Unless it is otherwise stipulated, the
extrajudicial expenses required by
the payment shall be for the account
of the debtor. With regard to judicial
costs, the Rules of Court shall
govern.
General Rule:
The debtor has to pay for the extrajudicial
expenses incurred during the payment.
Reason: By express provision of law.
Reason for the law: It is the debtor who
benefits primarily, since his obligation is thus
extinguished.

Exception: When there is a stipulation to the

 ARTICLE 1248
Unless there is an express stipulation
to that effect, the creditor cannot be
compelled partially to receive the
prestations in which the obligation
consists. Neither may the debtor be
required to make partial payments.
However, when the debt is in part
 Performance Should Generally Be
Complete
Under Art. 1233 of the Civil Code, 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. Hence, partial performance
is not allowed generally under Art. 1248.
EXCEPTIONS: PARTIAL PERFORMANCE IS ALLOWED:

(a)  When there is stipulation to this

effect;
(b)  When the different prestations are
subject to different conditions or
different terms; (Example: a debt
payable in installments)
(c)  When a debt is in part liquidated
and in part unliquidated, in which case
(e)  When a solidary debtor pays only the part
demandable because the rest are not yet
demandable on account of their being subject
to different terms and conditions;
(f)  In case of compensation, when one debt is
larger than the other, it follows that a balance
is left (See Art. 1290, Civil Code);
(g) When work is to be done by parts.
 ARTICLE 1249
The payment of debts in money shall be made
in the currency stipulated, and if it is not
possible to deliver such currency, then in the
currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to
order, or bills of exchange or other mercantile
documents shall produce the effect of payment
‘Legal Tender’ Defined
It is that which a debtor may compel a creditor
to accept in payment of the debt (whether
public or private).
 ARTICLE 1250

In case an extraordinary inflation or

deflation of the currency stipulated
should supervene, the value of the
currency at the time of the
establishment of the obligation shall
be the basis of payment, unless there
(1) ‘Inflation’ Defined
It is a sharp sudden increase of money or credit
or both without a corresponding increase in
business transaction. (Webster’s Dictionary).
Since the value of money here tends to decrease,
the natural result is an increase in the price of
goods and services.
(2) ‘Deflation’ Defined
It is the opposite of inflation.
 ARTICLE 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
(1) Where Payment Must Be
Made
(a)  If there is a
stipulation — in the place
DESIGNATED
(b)  If there is no
 ARTICLE 1252
APPLICATION OF PAYMENTS
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
applica- tion of payment is made by the party
for whose benefit the term has been
constituted, application shall not be made as to
 SPECIAL FORMS OF PAYMENT
There are four special forms of payment:
(a)  application (or “imputation”) of
payments (Art. 1252, Civil Code);
(b)  dation in payment (“adjudicacion en
pago” or “datio in solutum”) (Art. 1245, Civil
Code);
(c)  assignment in favor of creditors
(“cession”) (Art. 1255, Civil Code);
(d)  tender of payment and consignation (Arts.
Application of Payments’ Defined
“It is the designation of the debt to which
should be applied a payment made by a debtor
who owes several debts in favor of the same
creditor.” (Castan). Stated differently, it is the
phrase applied to show which debt, out of two
or more debts owing the same creditor, is
being paid.
 ARTICLE 1253

If the debt produces interest, payment of the

principal shall not be deemed to have been
made until the interests have been covered.
Interest Must Be Paid First
The Article is obligatory, that is, the debtor
cannot insist that his payment be credited to
the principal instead of the interest. However,
if the creditor agrees, this is all right.
 ARTICLE 1254
When payment cannot be applied in
accordance with the preceding rules, or if
application cannot be inferred from other
circumstances, the debt which is most onerous
to the debtor, among those due, shall be
deemed to have been satisfied.
If the debts due are of the same nature and
burden, the payment shall be applied to all of
 PAYMENT BY CESSION
ARTICLE 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.
(1) Cession or Assignment in Favor of
Creditors Defined
It is the process by which a debtor transfers all
the properties not subject to execution in favor
of his creditors so that the latter may sell them,
and thus apply the proceeds to their credits.
(See 8 Manresa 323; Castan; and Art. 1255).
(2) Kinds or Classes of Assignment
•
ARTICLE 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
‘Tender of Payment’ Defined
The act of offering the creditor what is due
him together with a demand that the creditor
accept the same.

‘Consignation’ Defined
The act of depositing the thing due with the
court or judicial authorities whenever the
creditor cannot accept or refuses to accept
Examples:
A owes B a sum of money. A gives B the
money but B refuses without just reason to
accept it. What should A now do?
ANS.: A must deposit the money in court,
since his tender of payment was refused
without just reason. His deposit in court is
called consignation.
 ARTICLE 1257
In order that the consignation of the thing due
may release the obligor, it must first be
announced to the persons interested in the
fulfillment of the obligation.
The consignation shall be ineffectual if it is
not made strictly in consonance with the
provisions which regulate payment.
1) Essential Requisites for Consignation
(a)  existence of a valid debt
(b)  valid prior tender, unless tender is
excused
(c)  prior notice of consignation (before
deposit)
(d)  actual consignation (deposit)
(e)  subsequent notice of consignation
Article 1258
Consignation shall be made by
depositing the things due at the
disposal of judicial authority, before
whom the tender of payment shall be
proved, in a proper case, and the
announcement of the consignation in
other cases.