ARTICLE 1231

OBLIGATIONS ARE EXTINGUISHED:

(1) BY PAYMENT OR PERFORMANCE;

(2) BY 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. (1156A)

CAUSES OF EXTINGUISHMENT OF OBLIGATIONS

1. Death of the party if obligation is personal

2. Mutual withdrawal where after the borrower’s loan is approved instead of insisting for the release, he asked
that the mortgage given by him as security be cancelled by the debtor (DBP). Mutual disagreement (which is the
case above) can extinguish a contract. (Mutual agreement - opposite)
3. Arrival of resolutory period
4. Compromise
5. Impossibility of fulfillment
6. Happening of a fortuitous event

ARTICLE 1232
PAYMENT MEANS NOT ONLY THE DELIVERY OF MONEY BUT ALSO THE PERFORMANCE, IN ANY OTHER MANNER, OF AN OBLIGATION.
(N)

MEANING OF PAYMENT

1. Ordinary parlance – only to delivery of money

2. Payment – not only consists of money but also giving of a thing or doing/not doing of an act.
If debtor pays damages/penalty to fulfill an obligation, there is also payment
PAYMENT = PERFORMANCE

ARTICLE 1233
A DEBT SHALL NOT HAVE BEEN 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. (1157)

WHEN DEBT IS CONSIDERED PAID

Debt – an obligation to deliver money/a thing/to do or not to do an act

1. Integrity of prestation – a debt to deliver a thing (including money) or to do service. It has to be delivered or
rendered completely for the debt to be paid. Partial/Irregular performance will not extinguish obligation
2. Identitiy of the prestation – the very prestation due must be delivered/performed

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. (N)
 RECOVERY ALLOWED IN CASE OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH

This article if the first exception to Article 1233 because:

 Adopted from American Law

 In case of substantial performance, obligee is benefited
 Obligor should be allowed to recover (as if there have been a complete fulfillment less damages suffered by
obligee)
 Compensation for breach committed by obligor

REQUISITES FOR THE APPLICATION OF ARTICLE 1234

1. There must be substantial performance

2. The obligor must be in good faith

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. (N)

RECOVERY ALLOWED WHEN INCOMPLETE OR IRREGULAR PERFORMANCE IS WAIVED

This is another exception to article 1233, and founded on the principle of estroppel.

 If payment irregular/complete, creditor may reject

 If creditor accepts, the right must be waived, then the obligation is estinguished

REQUISITES FOR THE APPLICATION OF ARTICLE 1235

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

2. He accepts performance without expressing protest/objection

ARTICLE 1236
THE CREDITOR IS NOT TO 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. (1158A)

PERSONS FROM WHOM THE CREDITOR MUST ACCEPT PAYMENT

1. Debtor
2. Any person who has an interest in the obligation (e.g. guarantor)
3. Third person who has no interest in obligation when there is stipulation he can make payment

CREDITOR MAY REFUSE PAYMENT BY A THIRD PERSON

 Creditor should have a right to insist on the liability on the debtor unlike before; the creditor cannot refuse
payment made by the third person.
 Creditor is also not compelled to accept payment by a third person whom he dislikes. The creditor may not
desire to have any dealings with the third person (May it be for personal reasons).

The creditor is only making sure, that’s why he may not accept payment from a third person.
EFFECT OF PAYMENT BY THIRD PERSON

*Payment/performance may be made by any person not incapacitated, even without the knowledge or against will of
debtor, and although he has absolutely no interest in obligation.

1. If made without the knowledge or against the will of the debtor – payer can recover from the debtor
only insofar the payment has been beneficial to the latter
2. If made with the knowledge of the debtor – the payer has rights of reimbursement and subrogation (to
recover what he has paid – not necessarily the amount of the debt), and to acquire all rights of debtor.

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. (1159A)

RIGHT OF THIRD PERSON TO SUBROGATION

 Whoever pays in behalf of debtor is entitles to subrogation, if payment is with consent of latter.
 If payment is without knowledge or against will of debtor then third person cannot compel creditor to subrogate
him in the latter’s accessory rights of mortgage, guaranty, or penalty.
 Subrogation can only take place with debtor’s consent.
 Third person who w/o necessity paid under such condition is protected by his right to reimbursement

SUBROGATION AND REIMBURSEMENT DISTINGUISHED

Subrogation Reimbursement
 Person who pays for debtor is put into shoes of  Third person entitled by reason of payment has
creditor merely the bare right to be refunded (only to
 Payor acquires not only right to reimburse what extent of article 1236), this is without right to the
he has paid but also all other rights creditor could guarantees and securities of original obligation
have exercised (credit against debtor or against
third persons – guarantors or possesors of
mortgages)
 There is no real extinction of obligation, only
change of creditor

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)

PAYMENT BY A THIRD PERSON WHO DOESN’T INTEND TO BE REIMBURSED

This article embodies the idea that no one should be compelled to accept the generosity of another. If paying the third
person does not intend to reimburse then the payment is made into a donation which requires the debtor’s consent to be
valid.

However if creditor accepts payment, it will be also considered as a donation even without consent of the debtor.

*Example: D owes C 1php, S paid D’s obligation without intention of being reimbursed. D had previously accepted S’s
generosity. D is not liable to S and D’s obligation is extinguished. If D did not give consent to the donation, S may
reimburse, even id S didn’t intend to be reimbursed. The obligation of D to C is extinguished because the payment is valid
to C who has accepted it. D cannot legally refuse to pay S and insist to pay C.
 ARTICLE 1239
IN OBLIGATIONS TO GIVE, PAYMENT MADE BY ONE WHO DOES NOT HAVE FREE DISPOSAL OF THE THING DUE AND CAPACITY TO
ALIENATE IT SHALL NOT BE VALID, WITHOUT PREJUDICE TO THE PROVISIONS OF THE ARTICLE 1247 UNDER THE TITLE ON “NATURAL
OBLIGATIONS.” (1160A)

MEANING OF “FREE DISPOSAL OF THING DUE” AND “CAPACITY TO ALIENATE”

1. Free disposal of thing due – thing to be delivered must not be subject to any claim, lien or encumbrance
(mortgage, pledge) of a third person
2. Capacity to alienate – person is not incapacitated to enter into contracts and to make the disposal of a thing
due

“FREE DISPOSAL OF THING DUE” AND “CAPACITY TO ALIENATE” REQUIRED

 In obligations to give, payment by one who doesn’t have the free disposition of a free thing due and capacity to
alienate is not valid (paid thing can be recovered)
Exception: creditor cannot be compelled to accept payment where the person has no capacity to make it

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. (1162A)

PERSON TO WHOM PAYMENT SHALL BE MADE

1. Creditor or oblige
2. His successor in interest
3. Any person authorized to receive it

Creditor referred to must be the creditor at time of payment not at time of c0nstitution of obligation

ARTICLE 1241
PAYMENT TO A PERSON WHO IS INCAPACITATED TO ADMINISTER HIS PROPERTY SHALL BE VALID AS 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 TO BE PROVED IN THE FOLLOWING CASES:

1. IF AFTER THE PAYMENT, THE THIRD PERSON ACQUIRES THE CREDITOR’S RIGHTS;
2. IF THE CREDITORS RATIFIES THE PAYMENT TO THE THIRD PERSON;
3. IF BY THE CREDITORS CONDUCT, THE DEBTOR HAS BEEN LED TO BELIEVE THAT THE THIRD PERSON HAD AUTHORITY TO
RECEIVE THE PAYMENT. (1163A)

EFFECT OF PAYMENT TO AN INCAPACITATED PERSON

 Payment to a person unable to manage his property is not valid unless such incapacitated person kept the thing
paid or delivered, or it was benefited by payment.
 In absence of benefit, debtor may be made to pay again by the creditor’s guardian/incapacitated person himself
(when capacity is recovered)
 Proof of benefit is obligatory upon debtor who paid
EFFECT OF PAYMENT TO THIRD PERSON

 Payment to third person or wrong party is not valid unless it was redounded to benefit of creditor
 The payment made by debtor to third person benefited by creditor is no presumed and must be established by
person in proving this fact
 In absence of proof, payment thereof in error and in good faith will not deprive creditor to demand payment

WHEN BENEFIT TO CREDITOR MAY NOT BE PROVED BY DEBTOR

1. Subrogation of payer in creditor’s rights

2. Ratification by creditor
3. Estroppel on part of creditor – admission or representation is rendered conclusive upon person making it and
cannot be denied as against person relying thereon.

ARTICLE 1242
PAYMENT MADE IN GOOD FAITH TO ANY PERSON IN POSSESSION OF THE CREDIT SHALL RELEASE THE DEBTOR. (1164)

PAYMENT TO THIRD PERSON IN POSSESSION OF CREDIT

 This refers to the possession of credit itself

 Mere possession of instrument(unless transferable by delivery) does not entitle holder to payment
 Payment does not release the debtor
 Payor must act in good faith

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 (1165)

PAYMENT TO THE CREDITOR NOT VALID

 In action against debtor that is the creditor of another(during pendency of case), the debtor-stranger may be
ordered by court to retain the debt until right of plaintiff, the creditor in main litigation is resolved
 Payment made by debtor-stranger shall be invalid id plaintiff wins case and cannot collect from debtor to whom
payment is made (considered to have made in bad faith).

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 ACT OR FORBEARANCE CANNOT BE SUBSTITUTED BY ANOTHER ACT OR FORBEARANCE
AGAINST OBLIGEE’S WILL. (1166A)

VERY PRESTATION DUE MUST BE COMPLIED WITH

 First paragraph refers to a real obligation to deliver specific thing. A thing different from what is due cannot be
demanded against will of debtor or creditor.
 Second refers to personal (negative and positive) obligations. Act to be performed or prohibited can’t substituted
against obligee’s will

WHEN PRESTATION CAN BE SUBSTITUTED

 Substitution can happen if oblige consents

 Facultative obligations – debtor is given right to render another prestation in substitution
 This article will not apply in case of waiver by creditor or substitution is allowed with consent of creditor
 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. (N)

SPECIAL FORMS OF PAYMENT

1. Dation in payment – (adjudication, dacion en pago) is conveyance of ownership of a thing as an accepted

equivalent of performance. It is not an ordinary way of extinguishing obligation. An existing debt in money is
satisfied not by payment of money but alienation of property.
2. Application of payments (Article 1253) – strictly speaking, this is not a special form of payment
3. Payment by cession (Article 1255)
4. Tender of payment and consignation (Articles 1256 to 1261)

*conveyance – in effect, a novation of the contract

GOVERNING LAW

Law of sales governs because dation in payment may be considered specie of sale: amount of the money due becomes
price of thing alienated