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, such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code.

Explanation:

1. Payment - means not only the delivery of money but also the performance, in any other manner, of
an obligation. (Article 1232)

- Once na magbayad yung debtor ng kanyang utang, maextinguish na yung obligation niya. Kung
meron siyang utang in cash, at nagbayad siya, payment yung tawag. Kapag performance naman,
ibig sabihin yung obligation niya is an obligation to do something, or ipeperform ng debtor yung
kanyang obligation.

Example:

 A promised that he would paint a portrait of B in exchange of Php 100,000. A did and delivered
the portrait on time. A's obligation here was extinguished by performance.
 B, in turn, has the obligation to pay the Php 100,000 fee. He issued a check in favor of A. A
encashed the same. B's obligation here was extinguished by payment.

2. Loss of the Thing Due

- The obligation is to give a specific thing, and kapag nawala yung specific thing due to a fortuitous
event, maextinguish yung obligation.

Example:

 A promised to make and deliver a particular sculpture for B. Without his fault and after actually
finishing the art, a burglar entered A's house at night and stole the sculpture. A here now does
not have any obligation to deliver the sculpture anymore; his obligation has been extinguished
by the thing's loss.

3. Condonation - it is the gratuitous abandonment by the creditor of his right.

- From the word itself "condonation", merong root word na donate. Si creditor winawaive na niya
yung right niya na singilin pa yung taong may utang sa kanya, hindi na niya i-eenforce yung
obligation na magbayad sa kanya, it seems like dinonate nalang niya sa debtor yung pinautang
niya.
Example:

 A owed B $5000. B decided to let go of the $5000 debt since A has been a very good friend to
him through the years. A here now does not have any obligation to pay the money anymore
because it was condoned by B.

4. Confusion or Merger - it is the meeting in one person of the qualities of creditor and debtor with
respect to the same obligation.

Example:

 A borrowed money from B so, in order to pay, A issued a check in favor of B. B then, who was in
turn indebted to C, handed it to C. Unknown to B, C also owed the same amount of money from
A. C returned the check to A. There is now a merger of the rights of the debtor and the creditor.

5. Compensation - the extinguishment in the concurrent amount of the obligations of those persons
who are reciprocally debtors and creditors of each other.

Example:

 A and B are debtors and creditors of each other both in the amount of Php 100,000. By
operation of law, A and B are no more debtors and creditors of each other.

6. Novation - replacement of an old contract with a new one, by changing the object or principal
conditions, substituting the person of the debtor, and subrogating a third person in the right of the
creditor.

Example:

 A had the obligation to deliver a certain car to B and if they both agreed that the thing to be
delivered would be a certain unit of personal computer instead, the obligation to deliver the car
cannot be enforced anymore. Assigning C in place of A or D in place of B would also extinguish
the obligation to deliver the car between A and B.

Other Causes:

Annulment

 A, 16 years of age, entered into a contract with B, 21. A's parents knew and went to court. They
argued that the contract is voidable and sought the annulment of the same.

Rescission

 Pending litigation over a parcel of land, B, the defendant in the case, sold the same parcel of
land to C, who knew very well of the nature of the parcel of land and of the pending hearing
over the same. A, the plaintiff, filed an action for the rescission of the contract of sale between B
and C.

Fulfillment of the Resolutory Condition

  A told B, "This car is yours until you pass the BAR." B passed the BAR. A's obligation to give the
car, or more accurately put, to let B enjoy possession and use of the car, is extinguished by the
happening of the resolutory condition.

Prescription

 Under Law XXX, a student may demand the school a rebate of 10% of all his total tuition
payments within one (1) month after his graduation. A graduated on January 1. He demanded
on February 27. Here, the school's obligation to grant the rebate had already prescribed.

Death of a party if the obligation requires personal service

 A met minds with B to have the former's house and lot sold to the latter. The contract was
perfected. However, A died the following day. Is B still bound to pay the house and lot? Not
anymore.

Mutual Withdrawal

 A and B perfected a contract to sell. They, however, later on, both agreed to cancel the contract.

Arrival of the Resolutory Period

 A told B, "This car is yours until the first day of 2016." The first day of 2016 came. A is no more
bound to let B maintain possession over the car.

Compromises

 A bound himself to give B a parcel of land. They, however, agreed and entered into a
compromise that A would instead give half of the promised land. A's obligation to completely
deliver the parcel of land had already been extinguished.

Impossibility of Fulfillment

 A bound himself to deliver 2 sacks of brown rice to B. The following day, all kinds of brown rice
were declared illegal by a statute. Here, there occurred what is called legal impossibility.

Fortuitous Event

 A and B agreed that the former would deliver a certain dog to the latter. The dog, however,
without the fault of A, died when a meteor hit it while it was sleeping one night.

Article 1232. Payment means not only the delivery of money but also the performance, in any other
manner, of an obligation.

Explanation:

First and foremost, there must be a pre-existing obligation kasi kung walang obligation, wala rin namang
babayaran in the first place. (car)
In Article 1232, it does not only refer to payment of money, but also to the performance of an
obligation. Kasi kapag sinabing payment, ang unang pumapasok sa isip natin is pera. But according to
this article, an obligation can be paid in a variety of ways, including the delivery of money, the provision
of a thing (other than money), the performance of an act, or the failure to perform an act. In law,
payment and performance are synonymous.

Example:

 If D is obligated to give E a specific car, payment is made by delivering the car.

 If C is obligated to repair the computer of F, payment is made by performing the service.

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.

Explanation:

Debt - refers to an obligation to deliver money, to deliver a thing (other than money), to do an act or
not to do an act.

This article answers the questions “When was the debt considered as paid?”

Two Requisites of Payment

1.Integrity of the prestation – the prestation must be fulfilled completely. Dapat completely delivered
or rendered na ang obligation kasi hindi pwede ang partial or incomplete, otherwise, hindi maextinguish
ang obligation.

Example:

 A promised to pay P1,500.00 to B. A is only giving P1,000.00 to B. B can refuse to accept the
P1,000.00 because the fulfillment is not complete.

2.Identity of the prestation - the very prestation must be delivered and performed. Dapat kung ano
yung napagkasunduan iyon yung madeliver or maperform.

Example:

 A agreed to deliver 50 sacks of Jasmine rice to B. Later on, A deliver Sinandomeng rice to B,
which is different from the thing due. The payment is not acceptable.

Burden of Proving Payment

At first, si creditor ay may burden of showing na may debt or obligation na nag-eexist. Once na
naestablish niya na merong existing obligation, si debtor naman ang may burden iprove na nabayaran na
niya. One way is to present receipt of payment.

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.
Explanation:

This is also known as the substantial performance in good faith, which is an exception to the general rule
na dapat ang payment must be complete.

Two requisites:

1. There must be a substantial performance

2. The obligor must be in good faith

- "Substantial performance" means performance according to the fair intent of the contract. Dito,
the obligor failed to completely fulfill the entire obligation, he failed to deliver or perform only
the small or minor parts of the obligation, but he acted in good faith, which means he wants to
deliver or perform the entire obligation, however, the reason for him not being able to do it is
beyond his control. Therefore, the obligor may recover as though there had been a strict and
complete fulfillment. Since, there was still breach in the performance of the obligation by the
obligor, the amount of damage suffered by the obligee must be deducted from the benefit that
the obligor seeks to recover.

Example:

 A obliged himself to sell one thousand (1,000) sacks of rice to B for a certain price. However,
despite diligent effort on his part, A was able to deliver only nine hundred fifty sacks (950)
because of the rice shortage. A wants to comply with his obligation to deliver the entire
obligation but he could not do so for reasons beyond his control.
 A can recover as if there had been entire delivery less the cost of the fifty sacks under the law.
As a condition of his obligation for the fee, B cannot force A to produce the remaining fifty bags
first. He must pay for the 950 bags and pursue his damages claim against A for failing to deliver
the difference. However, A must provide a satisfactory explanation for his failure to complete
delivery.

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.

Explanation:

Two requisites:

1. The obligee knows that the performance is incomplete or irregular.

2. He accepts performance without expressing any protest or objection.
- The word “accept” in this article means to take or agree to an incomplete or irregular payment.

- It is another exception to the rule that payment must be complete to extinguish the obligation.
This article is base on the principle of estoppel meaning the obligee is now estope to question
kasi nung nagbayad, hindi naman siya nagreklamo and tinanggap niya nang walang protest or
 objection. It is as if he waived his right kasi kapag incomplete ang payment, may right ang
obligee not to accept the payment. Pero dito, tinanggap niya, so the law presumes that he is
waiving his right to reject it, therefor, the obligation is extinguished.

Example:

 A availed of C's services to renovate his house for the purpose of making it soundproof. B
renovated the house but the soundproofing was NOT effective. A texted B that he is NOT
satisfied with the latter's work. Obligation is NOT fully extinguished.

Article 1236. The creditor is not bound to accept payment 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.

Explanation:

- The first paragraph refers kung kaninong payment ba si creditor is bound to accept payment at
kaninong hindi siya bound to accept payment.

The creditor is bound to accept payment:

1. Debtor
2. Any person who has an interest in the obligation. For example, mga guarantor. Kung yung property
mo ay on the mortgage to secure payment from your friend, ikaw ay may interest to pay otherwise,
mawawala yung property mo.
3. A third person who has no interest in the obligation when there is stipulation that he can make
payment

- The second paragraph refers sa kung ano ba ang epekto ng payment ng third person kasi nga
wala siyang interest sa fulfillment ng obligation pero gusto niyang magbayad.

Effect of Payment by a Third Person

1. When the payment of the third person is with the debtor’s knowledge and consent - the third
person has the rights to demand from the debtor what he has paid, though reimbursement and
subrogation. Subrogation means the payor steps into the shoes of the creditor, which means he is
entitled to exercise all the rights and actions na pwede at available gawin ni creditor, such as
guaranty, mortgage and the like.
2. When the payment of the third person is without the debtor’s knowledge and consent – the third
person can only have beneficial reimbursement, he is not entitled to subrogation. The recovery is
only up to the extent or amount of the debt at the time of payment.

Example:
  A paid Php 500 for B without the latter's knowledge or consent. Later, it turned out that B only
had to pay Php 250. What happens then?
 Since A made the payment in favor of B without his knowledge or consent, he can only demand
Php 250 - the beneficial payment. A's action for recovery of the beneficial payment should be
directed against B and not the creditor since this is not a case of solutio indebiti. There is no
mistake in payment since the Php 250 was actually due and demandable at the time of
payment. The other Php 250 is of course covered by the principle of unjust enrichment since
what was actually required was Php 250, not Php 500. The proper course of action is to recover
said amount from the creditor who received it unduly.
 If made with the knowledge of the debtor, A may seek compensation and recovery for guaranty,
penalty clause, mortgage, and other similar rights.

Article 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.

Explanation:

Subrogation means the third person acquires not only the rights to be reimbursed for what he has paid
but also the other rights attached to the obligation originally contracted by the debtor such as mortgage,
guaranty, or penalty.

- Whoever pays on behalf of the debtor is entitled to subrogation if the payment is with the
consent of the debtor. If the payment is without the knowledge or against the will of the debtor,
the third person cannot compel the creditor to subrogate him.

Difference between Subrogation and Reimbursement

1. In subrogation, the payor acquires not only the right to be reimbursed for what he has paid but also
other rights which the creditor could have exercised such as guaranty, mortgages and penalty. There
is no real extinction of the debt, but a new creditor with exactly the same right as the old creditor
appears.
2. In reimbursement, the payor only has the right to refund the amount without the right to
guarantees and securities of the original obligation.

Example:

 A borrowed from B P1.000.00. C is the guarantor. Without the knowledge or consent of A, D

paid B P1,000.00. In this case. D can claim reimbursement from A for the whole amount of
P1,000.00 in as much as A was benefited up to that amount. If A cannot pay D, the latter cannot
proceed against C, the guarantor (even if B is willing) because, having paid without the consent
of A, d is not entitled to subrogation. But if the payment was with the express or tacit approval
of A. D would be entitled not merely to full reimbursement but also to subrogation.
 Suppose the obligation of A is secured by a mortgage of a land owned by her. Payment by D
without the knowledge or against the will of A, cannot give D the right to foreclose the
 mortgage because he has no right to subrogation. D can recover only insofar as the payment has
been beneficial to A.

Article 1238. Payment made by a third person who does not intend to be reimburses 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.

Explanation:

- In a donation, in order to be perfected, dapat may acceptance ni donee because no one should
be compelled to accept the generosity of others. Kaya naman, kapag yung payment made by
third person na wala namang balak magpareimburse kay debtor, it is deemed as donation, but
there should be the debtor’s consent.
- Kapag tinanggap ni creditor yung payment ng third person, even without the knowledge of the
debtor, the payment is valid.

Example:

 A owes B P1,000.00. Without the intention of being reimbursed, C paid A’s obligation. A had
previously accepted C’s generosity. In this case, A is not liable to C and his obligation to B is
extinguished. But if A did not consent to the donation, C may recover from A since there has
been no donation, although originally A did not intend to be reimbursed. Nevertheless, the
obligation of A to B is extinguished because the payment is valid as to B who has accepted it.

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."

Explanation:

Free disposal of the thing due - means the thing to be delivered should not be subject to any claim of a
third person.

Capacity to alienate - the person is not incapacitated (prevent from functioning in a normal way) to
enter into contracts, and to make disposition of the thing due.

- This article deals with obligation to give. The payor must have the free disposal of the thing paid,
otherwise the payment is not valid. Payor who does not have the capacity to alienate the thing
such as when he is a non-compos mentis (not of a sound mind) the payment is not valid and it
can be annulled unless it is made by minors under article 1427 which states that: "money or
fungible goods delivered by a minor can no longer be recovered if they have been consumed by
the creditor in good faith.

Example:
  Suppose Ernesto a forty year old insane transfer the title of his land to Tomas, his creditor for
the satisfaction of his debt. Such transfer is not valid since the insane has no legal capacity.
However, further reading of the law will tell us that not all the transactions of an insane person
are invalid, transactions done during the lucid intervals are valid.

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.

Explanation:

- This article answers the question to whom payment must be made?

Payment shall be made to

1. The obligee, or the person in whose favor the obligation has been constituted. It refers to the
obligee at the time of the payment not necessarily the obligee at the constitution of the obligation.
If may new person na nasubrogate ng rights ni obligee, sa kanya na ibibigay ang payment.
2. His successor in interest (heirs or assignee)
3. Any person authorized to receive it. It does not only refer to a person authorizes by the obligee but
also the person authorized by law to receive the payment, such as guardian, executor, administrator
of the estate of a deceased, or liquidator of partnership or corporation, and the like.

- Kapag ang pagbabayad ay ginawa sa maling tao, ibig sahihin the obligation is not extinguished.

Example:

 FACTS: D owed C. Instead of paying C, D deposited the money in a bank in the name and for the
credit of C. All these were done without C's permission.
 ISSUE: Has the debt been extinguished?
 HELD: No. But if after efforts had been made, the creditor could not be found. particularly at the
place were payment is supposed to be made, the debtor cannot be held guilty of default

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 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.

Explanation:

- The first paragraph refers to payment to incapacitated person. Is the payment to a person who
is incapacitated to administer his property valid?
It is valid only:

1.If he has kept the thing delivered

2.The payment is beneficial to him