CHAPTER 4 condition, and prescription, are governed

elsewhere in this Code

EXTINGUISHMENT OF
OBLIGATIONS Additional causes (FIRMDC)

(1) Fortuitous event

ART. 1231 (2) Impossibility of fulfillment

Obligation are extinguished: (3) Resolutory period arrival

(1) by payment or performance (4) Mutual decision of the party

-you already performed or paid the
(5) Death of the party requiring personal
obligation
services
(2) loss of thing due
(6) Compromise
-If the thing is specific and cannot be
ART. 1232
replaced
Payment means not only the
Eg. A paper money with a serial number
delivery of money but also the
(3) condonation or remission of debt performance, in any other manner, of an
obligation
-cancellation of debt
Payment
(4) confusion or merger of the rights of
creditor and debtor
Ordinary
- happens when the right of creditor delivery of money
Parlance
and debtor merged to one person.

(5) compensation

- set-off/ quits giving a thing, doing

Legal
- means they are equally compensated Mode an act, not doing an
with each other’s obligation
act
Eg. When you were on your kids age. You
tend to play jolen, text and pogs and ask to
borrow if you already lost. Once you won you
will compensate or give back what you ART. 1233
borrowed.
A debt shall not be understood to
(6) novation
have been paid the thing or service in
-old obligation is changed to new one which the obligation consists has been
completely delivered or rendered, as the
-there is a modification and
case maybe.
substitution of an obligation
Considered as paid
Other causes such as annulment ,
rescission fulfillment of resolutory (1) Integrity of prestation
-full performance of the obligation If not performed
completely but the seller
- If the thing delivered is not the thing or acted in good faith, the
incomplete under stipulation, he can refuse to buyer is compelled to pay
but less those that are not
pay. yet delivered.
(2) Identity of prestation

- must be delivered
ART. 1235
- the very and agreed prestation must be
delivered When the obligee accepts the
performance, knowing its
Presentation of receipt is a decent
confirmation of payment. In this way, a
incompleteness or irregularity and
debtor can request the a receipt from the without expressing any protest or
creditor once his obligation is paid. objection, the obligation is deemed
fully complied with

Exemption in Article 1233 found in

ART. 1234
If the obligation has
substantially performed in good faith, the
obligor may recover as though there had
been a strict and complete fulfillment, less
damages suffered by the oblige
Exemption in Article 1233 found in
Article 1234:
When there is substantial performance
and will considered fulfilled, only
compensation about breach of obligor
must be paid
Article 1235:
been If the payment is incomplete,
creditor may reject it and in case of
acceptance, law considers he already waive
his right, then obligation is extinguished
Requisites:
(1) Obligee knows the incompleteness or
irregularity of performance.
(2) Accept the performance without
expressing a protest or objection.

Requisites:
When the obligation with irregularity is known
(1) Substantial performance by the debtor, the obligation is considered
complied or extinguished.
- essential or important part of
contract have been performed while
minor are not yet. Regular Payments
-complying on what
- doctrine of substantial performance P
stipulation is
A
(2) Obligor must be in good faith Y
M
- presumed in the absence of proof of E
N
contrary T Irregular Payments
-incomplete to what
stipulation is
ART. 1236 (2) If made with knowledge of the debtor

The creditor is not band to accept
payment or performance by a third party/
person who has no interest in the
fulfillment of the obligation, unless there
is a stipulation to the contrary.
-shall have rights of reimbursement and
subrogation of amount that is not necessary
to debt.
- acquire all the nights of the creditor

Whoever pays for another may

demand from the debtor what he has paid, ART. 1237

except that if he paid w/out the Whoever pays on behalf of the

knowledge or against the will of the
debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Persons from whom the creditor must
accept payment
debtor w/out 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.
Third party subrogation right

(1) debtor - Whoever pays on behalf of the debtor with

consent is entitled to subrogation
(2) guarantor
- If no consent, 3rd person cannot compel

(3) 3rd person without interest but with - Even if the creditor giver right Art. 1237
stipulation he is capable focus on the right of debtor

Subrogation Reimbursement

UPDATED CIVIL CODE:

-gets all the right of the - entitled to refund to
On old civil code they cannot refuse
creditor; change of the extent without
accept to receive, but on new civil code they
creditor guarantees and securities
can choose who they want to receive.

Effect of payment by a third person

(1) Made w/o the knowledge or against the

ART. 1238
will of the debtor
Payment made by a third person
- payor can recover only insofar as the
who does not intend to be reimbursed by
payment beneficial to the latter. Recovery is
the debtor is deemed to be a donation,
only up to extent of debt at the time of
which requires the debtor consent. But
payment
the payment is in any case valid as to the  once the thing is consumable he
creditor who has accepted it . cannot recover the same because it
has been consumed
- If no one is compelled to accept
 minor has no power to alienate a
generosity of another
contract
- if the person is not intended to be
reimbursed it is considered as donation and
requires debtor consent to be valid Art. 1240

- if the debtor accepts payment, it is valid 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 .
Art. 1239
Persons from whom the payment shall
In obligations to give, payment be made:
made by one who does not have the free
disposal of the thing due and capacity to
(1) creditor or obligee
alienate it shall not be valid, w/out
prejudice to the provision if Art. 1427,
(2) successor
under the title on Natural obligations
(3) person authorized to receive it

Free disposal of the thing due

AUTHORIZED BY CREDITOR AND
- thing to be delivered must not subject to any
LAW
claim of 3rd person
 if a person is subrogated payment
Capacity to alienate
should be made to him
-person is not incapacitated to enter into  payment in good faith to any person is
contracts valid although person may not be

TAKE NOTE: authorized to receive the payment

 those payments that don’t have free

disposal and capacity are invalid.
 thing paid can be recovered
 creditor cannot compel to accept
payment where there is no capacity to
make it
Art. 1241 Effect of payment to a third person

Payment to a person who is - invalid except if it has redounded to the

incapacitated to administer his property benefit of the creditor
shall be valid if he has kept the thing
- there must be proof of benefit, in absence it
delivered, or insofar as payment has been
can be an error
beneficial to him.

Payment made to a third person Article 1241 applies to payments made

shall also be valid insofar as it has by the debtor with the intention to
extinguish his obligation.
redounded to the benefit of the creditor.

Such benefit to the creditor need

not be proved in the following cases:
When benefits to creditor need not be
(1) after payment, 3rd person acquires proved by debtor
creditors right
(1) subrogation in creditors right
(2) creditor ratifies the payment to 3rd
(2) estoppel on the part of the creditor
person
(3) ratification by the creditor
(3) creditors conduct, debtor believed that
it has an authority to received
When the creditor is
incapacitated and cannot
Article 1241 is an exemption to administer his own property, the
the rule found in Article 1240: creditor needs a legal guardian to
receive the payment. If there is
Payment to a third person none, the debtor may consign
may still be valid as when the the thing in court so that he will
creditor is benefited. The validity of be released from the obligation.
the payment is co-extensive to the
benefit the creditor receives. These
benefits require evidence to
establish to the extent it was Art. 1242
enjoyed.
Payment made in good faith to any
person in possession on of the credit shall
release the debtor.
Effect of payment to an incapacitated
person
This law is intended to protect
the debtor from being required to
- it is invalid unless the thing is kept or
double the payment to creditor.
benefited by the payment

- pay to the guardian

- absence of benefit can result on paying again

TAKE NOTE:
 valid payment of third person
 honest that he is making a valid
payment and payee is the owner of the
credit
 possession of instrument does not
entitle the holder to payment or
release the debtor
Art. 1243
Payment made to the creditor by
the debtor after the latter has been
judicially ordered to retain the debt shall
not be valid.
Payment to creditor not valid
 payment by debtor-stranger shall not
be valid if plaintiff wins the case,
considered as bad faith
 debtor who is creditor of another, the
court may retain the debt until the
right of plaintiff
Only applicable in “debts” or “credits”
not in property.
Art. 1244
The debtor of a thing cannot
compel the creditor to receive a diff. one.
although the latter may be of the same
value as, or more valuable than that which
is due. In obligation to do or hot to do, an
act or forbearance cannot be substituted
by another act or forbearance against the
obligee's will.
Very prestation due must be complied
with
(1) refers to real obligation to deliver a
specific thing cannot be offered against the
will of creditor or debtor
(2) refers to personal obligations. cannot be
substituted against the creditor's will .
GENERAL RULE
Creditor shall be paid only what has
been stipulated upon. The contract
shall be followed and valid.
Personal positive or negative
obligations, is an act that cannot be
substituted by another act unless
there is a creditor consents. The
consent shall constitute a waiver of
right.
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
Special form of payment
(1) Dation in payment (adjudication)
- is a conveyance of ownership of a thing as
an accepted equivalent
- hot an ordinary way of extinguishment
Ex: not money but property
(2) Application of payment
- not special form of payments
(3) payment by cession
(4) lenter of payment and consignation
  law of sales governs because dation is Extrajudicial expenses - shall be account to
considered a specie of sale, where debt debtor
becomes price of thing alienated
 obligation is extinguished when
There is dation in payment is made so debtor is the
payment when primary beneficial
property is alienated
to the creditor in  if there is stipulation, it must be
satisfaction of his followed
debt.
 does not apply to expenses by the
creditor

Judicial cost
Art. 1246
Note: Losing party generally pays
When the obligation consists in the judicial cost.

delivery of an indeterminate or generic  statutory amounts allowed in expense

thing, whose quality and circumstances incurred in the action
have not been stated, the creditor cannot  cost of an action is to be paid by
demand a thing of superior quality. losing partner/party.
Neither can the debtor deliver a thing of  court may adjudge or make it
inferior quality. The purpose of the equitable
obligation and other circumstances shall  no cost are allowed against the gov,
be taken into consideration unless provided by law

If the parties have made a stipulation as to

It is waived to Focus on the who will bear the expenses, then their
creditor, once right value of stipulation shall be followed.
accepting inferior amount delivered
quality or by according to
debtor delivering intention and Art. 1248
superior quality payment.
Unless there is an express
stipulation to that effect, the creditor
cannot be compelled partially to receive
Art. 1247
the prestations in which the obligation
Unless it is otherwise stipulated, consists. Neither may the debtor be
the extrajudicial expenses required by the required to make partial payments.
payment shall be for the account of the However, when the debt is in part
debtor. With regard to judicial costs, the liquidated and unliquidated, the creditor
rules of court shall govern. may demand and the debtor may affect
the payment of the former w/out waiting
Art. 1247 does not apply to expenses for the liquidation of the latter.
incurred by the creditor in going to the
debtor’s domicile to collect
  the provision only contemplates one
creditor and debtor
 there should be a complete
performance of prestation for the
obligation to be extinguished
 creditor can accept the partial
performance but cannot be compelled
 debtor is required to comply but not
required to make partial fulfillment If
he does not wish
Partial performance is allowed if :
(1) expressed in stipulation
(2) debt is liquidated and unliquidated
(3) prestation of obligation have diff. terms of
conditions which affect some of them,
prestations cannot executed simultaneously
but should be complete.
If the debt is in part liquidated and in
part unliquidated, the creditor may
demand and the debtor may effect the
payment of the former without waiting
for the liquidation of the latter.
Art. 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 only when they have
been cashed, or when through the fault of
the creditor they have been impaired. In
the meantime, the action derived from the
original obligation shall be held in
abeyance.
Abeyance - temporary inactivity
Legal Tender
-cannot refuse to accept
-currency offered by debtor in right amount,
creditor must accept it
- currency which may be used for payments of
debts whether public or private, and which
the creditor cannot refuse to accept.
 Debts in money shall be paid in the
currency stipulated, if cannot pay in
currency then the currency that is legal
tender in the Philippines must be
followed
 All the money or notes issued by BSP
is a legal tender
(Republic Act 7653)
Section 52
New Central Bank Act
(BSP) Circular 537
Series of 2006
All notes and coins issued by the
Banko Sentral ng Pilipinas shall be fully
guaranteed by the Government of the
Republic of the Philippines and shall be
legal tender in the Philippines for all debts,
both public and private;
Provided, however, That, unless otherwise
fixed by the Monetary Board,
 coins shall be legal tender in
amounts not exceeding One
Thousand Pesos (P1,000.00) for
denominations of One Peso and
above,
 amounts not exceeding One
Hundred Pesos (P100.00) for
denominations of Twenty Five
Centavos or less.”
 Payment by means of instrument of
credits
Negotiable documents
-are checks, promissory notes
payable to order or bills of exchange are
not considered as legal tenders.
-they may be refused by the
creditors.
(1) Right of creditor to refuse or accept
 Promissory notes, Checks, bills of
exchange are not legal tender, so
creditor should not be compelled to
accept it
(a) he can accept, without acceptance
or effect of payment. Demandability
of original obligation is suspended
(2) Effect on obligate on
-mercantile documents does
extinguish obligation, unless:
a. they are cashed
b. Impaired by creditors
Art. 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 is an agreement to
the contrary.
The basis of payment should be based on
purchasing value at that time, subject to
agreement by parties .
Inflation
- sudden increase of money w/out increase in
business transactions
-causes a drop level of money and rise of
general price level
Deflation
-reduction of money available, decline general
price level
- opposite of inflation
R.A. No. 6426
The only exception to the secrecy of
foreign currency deposits is in case of a
written permission of the depositor.
Although this provision speaks of obligation, it
does not apply to all obligations but only to
contractual obligations. It cannot be applied to
not obligations arising from torts.
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.
If the debtor changes his domicile
in bad faith or after he has incurred in
delay, the additional expenses shall be
borne by him. The provisions are without
prejudice to venue under the Rules of
Court
Obligation shall be paid on same, unless there is a cause for
invalidating the contract
(1) stipulated place
 the application by the debtor must be
(2) in delivery of determinate thing the place is
done (2) making of the payment, if
where obligation was constituted
after cannot longer apply.
(3) in delivery of generic thing domicile of
Application of payment
debtor or place of debtor
- designation of debt that should be applied
 Venue is a place where court suit or
the payment made by debtor who have
action must be filed
various debts in favor of one and the same
 Domicile is the place of a person's
creditor
habitual residence; fixed home
 Residence is an element of domicile Requisites of application of payments

(1) 1 debtor, 1 creditor

Residence Domicile
*Requires bodily *requires bodily (2) 2 or more debts
presence presence and
(3) debts must be the same kind
intention to actual
make it one's (4) payment must be applied to must be due

domicile (5) payment must not be sufficient to cover all

*actual *legal the debts

Application as to debts not yet due

SUBSECTION I
cannot made unless;
APPLICATION OF PAYMENTS
(1) stipulation
Art. 1252
(2) made by debtor or creditor, for whose
He who has various debts of the benefit the period has been constipated
same kind in favor of one and the Same
Rules
creditor, may declare at the time of
making the payment, to which of the (1) debtor has 1st choice, he must indicate
same must be applied. Unless the parties when he pay
so stipulate, or when the application of
(2) if the right to make application is
payment is made by the party for whose
exercised then it is irrevocable unless the
benefit the term has been constituted, creditor consents to the chance
application shall not be made as to debts.
which are not yet due. If the debtor (3) debtor does not apply payment, creditor
can make designation by specifying in the
accepts from the creditor a receipt in
receipt which debt is being paid
which an application of the payment is
made, the former cannot complain of the
(4) creditor has not made application or
application is not valid, the debt which is
most onerous to the debtor shall be deemed
to be satisfied
(5) If debts due are tame of nature and burden
the payment shall be proportionately
Art. 1253
If the debt producer interest,
payment of the principal shall not be
deemed to have been made until the
interest have been covered
Interest earned paid ahead
- rule in this article is mandatory
- debtor cannot choose to credit his payment
to principal before the interest is paid
- payment to interest must be first applied.
- creditor may refuse if it is contrary to the
provision
This article is merely directory, if there is an
agreement between parties the rule may be
subject or be followed bare on stipulation
Art. 1254
` When the 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 deemed to have been
satisfied. If the debts due are of the same
nature and burden the payment shall be
applied to all of them proportionately
 If no application of payment has been
made, the payment shall be applied to
most onerous debt. If debt are on
same nature and burden, divide it
proportionately.
When a debt more onerous than another
-no fixed rule
-more burdensome
Determining more burdensome debt
(1) interest-bearing debt
(2) debt as sole debtor
(3) secured by a mortgage or by pledge
(4) one with a higher rate
(5) debt w/ penalty clause
Debts subject to different burdens
- it cannot be definitely determined which
debt is most onerous to the debtor then it
should be paid proportionately
SUBSECTION 2
PAYMEN 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.
 Classes of Cession or
Assignment:
SUBSECTION 3
Voluntary or Contractual
cession or assignment by agreement Tender of Payment and consignation
of the parties
Art. 1256
Involuntary or legal
cession or assignment which is If the creditor to whom tender of
governed by the insolvency law payment has been refused w/out just
(Act 1956)
cause to accept it, the debtor shall be
released from responsibility by the
Payment by cession consignation of the thing or sum due
consignation alone shall produce the same
 -special form of payment
effect in the following cases.
 -abandonment of debtor properties to
(1) When the creditor is absent or
benefit his creditor, to satisfy their
unknown, or does not appear at the place
credits
of payment
Requisites of payment by cession;
(2) When he is incapacitated to receive the
(1) two or more creditor payment at the time it is due
(2) debtor is partially insolvent (3) When w/out just cause, he refuses to
(3) involves all the property of the debtor give a receipt;

(4) must be accepted by creditor
 If the proceeds of sales is completed
the debtor is free from liability, if not,
then he is still liable of the balance
(4) When two or more persons claim the
right to collect
(5) When the title of the obligation has
been list

Tender of payment
Dation Cession
- an act offering the ting of amount due.
*one creditor *several creditor
*hot presupposes *debtor is insolvent -debtor must show that he has possession to
the insolvency at assignment deliver on time
of the debtor *involves all the
*not involve all the property
Consignation
debtor property *creditor acquire
*debtors gives the right to sell; and - act of depositing the thing due to proper
creditor the apply the credits in court when creditor does not receive it.
ownership proportion
- applicable if there is an obligation
*act of novation *not act of novation
Requisites of valid Consignation
Basis Tender of Consignation
(1) valid debt that is due
Payment
(2) tender of payment by the debtor and Nature It is the It is the
refusal w/out justifiable reason by the creditor antecedent of principal or
to accept it. consignation consummating
(3) previous notice of consignation to persons or act for the
Interested in the fulfillment of the obligation preliminary extinguishment
act to of the
(4) Consignation of the thing or sum due
consignation. obligation.
(5) subsequent notice of consignation made to Effect It does not It extinguishes
the interested parties by itself the obligation

When tender of payment not required extinguish when declared

the valid.
- tender of payment is not necessary before
obligation.
the debtor can consign due with the court.
Character It is It is judicial for
-creditor, w/out legal justification that extrajudicial. it requires the
informs his debtor that the Payment of a debt filing of
will not be accepted thereby waives payment complaint in
on the date due; In consequence the debtor is court.
excuse from making a formal tender of money
on such date.

-debtor will not be in default in ma failing to

make a fuitless tender

Requirements for valid fender of payment

(1) must comply with rules on payment or on

the contract. Tender, even valid does not
produce legal payment, unless it is completed
by consignation

(2) unconditional and for the whole amount

due in the legal tender

(3) must actually made. debtor must show the

ability to perform an actual thing or money