MODES OF

EXTINGUISHIN
G AN
OBLIGATION
(ARTICLE 1231)
 OBLIGATIONS ARE EXTINGUISHED BY:
1. Payment or performance (Articles 1223
2. Loss of the thing due (Articles 1262-1269)
3. Condonation or remission of debt (Articles 1270-1272)
4. Confusion or merger of the rights of the creditor and debtor (Articles 1275-1277)
5. Compensation (Articles 1278-1290)
6. Novation (Articles 1291-1304)
OTHER MODES:
1. Annulment
2. Rescission
3. Fulfillment of resolutory condition
4. Prescription
5. Compromise
6. Happening of fortuitous event
7. Death of a party in personal obligations
8. Mutual desistance
WHO SHALL MAKE PAYMENT?
• Debtor
• Person interested in the obligation
• Successor in interest

TO WHOM SHALL THE PAYMENT BE MADE?

• Creditor
• Person authorized to receive payment
• Successor in interest
HOW IS PAYMENT MADE?
1. In monetary obligation, by the delivery of money in full.
2. If the obligation is to deliver a thing/object by delivering the
thing or object.
3. In an obligation to do something, by performance of supposed
undertaking.
4. In an obligation not to do something, by refraining from doing
the forbidden undertaking.
SPECIAL MODES OF PAYMENT
1. Dation in payment
2. Application of payment
3. Payment by cession
4. Tender of payment and consignation

Dation in payment is also known as –

Payment in kind
Datio in solutum
Adjudicacion en pago
Dation in payment – the debtor alienates his property to the creditor in
satisfaction of hie monetary obligations.

Payment by cession- the debtor transfers all his properties to the creditor so
the creditor may sell them and apply the proceeds to his obligations.

Application of Payment – is the designation of the debt to which should be

applied the payment by the debtor who owes several debts to the same
creditor.
REQUISITES FOR APPLICATION OF PAYMENT

1. One debtor and one creditor;

2. Two or more debts;
3. Debts are of the same kind;
4. All debts are due;
5. The payment being tendered is not enough to extinguish the
obligations.
TENDER OF PAYMENT – the act of offering the thing or the sum due.
CONSIGNATION- the act of depositing the sum or the thing due in court.

Consignation shall produces the effect of payment in the following cases:

• When the creditor is absent or does not appear at the place of payment;
• Incapacity of the creditor to receive payment
• Refusal to issue receipt without just cause;
• Two or more persons claim the same right to collect;
• When title to the obligation has been lost.
LOSS

The debtor is liable in the following cases despite loss of the object:
 When the debtor is in default/delay;
 When the debtor promised to deliver the same thing to two or more
persons who do not have the same interest;
 When the obligation arises from crime;
 In solution indebiti, when the payee is in bad faith;
 When the obligation is to deliver a generic thing;
 When there is an agreement.
CONDONATION/REMISSION – is the gratuitous abandonment by the creditor of his right
to collect the debt.

CONFUSION/MERGER- the meeting in one person of the qualities of creditor and debtor
with respect o the same obligations.

COMPENSATION – takes place when two persons in their own right is creditor and debtor
of each other.
CLASSIFICATION OF COMPENSATION
1. As to effect/extent
a. Total – both obligations are completely extinguish as they are of equal
amounts.
b. Partial – only one is completely extinguished; the other is partially unpaid.

2. As to the origin or cause

c. Legal – it takes place by operation of law and need not be pleaded.
d. Voluntary or conventional- it is by agreement of the parties.
e. Judicial – it can be made effective only by a court order.
f. Facultative – one of the parties may claim compensation.
REQUISITES OF LEGAL COMPENSATION

1.Each one of the obligors be bound principally, and that he be at

the same time a principal creditor of the other;
2.Both debts consist in a sum of money, or if things due are
consumable, they be of the same kind and quality;
3.Two debts be due;
4.They be liquidated and demandable;
5.Over neither of them there be any retention or controversy,
commenced by third persons.
NOVATION – the substitution or change of an obligation by another, which extinguishes
or modifies the first. It is effected by:

• Changing their object or principal conditions;

• Substituting the person of the debtor;
• Subrogating third person in the rights of creditor.

Requisites of Novation
a. Existence of a valid obligation;
b. Intent to extinguish or modify the old obligation;
c. Capacity and consent of the parties;
d. Validity of the new obligation.
KINDS OF SUBSTITUTION OF THE DEBTOR

DELEGACION – the original debtor proposes a new debtor to the creditor.

The insolvency of the new debtor who has been proposed by the original debtor shall
not revive the action against the original debtor.

EXPROMISSION- the original debtor is substituted by a new debtor without the

former’s knowledge and consent.

Insolvency of the new debtor shall not revive the liability of the original debtor.