Chapter 4

EXTINGUISHMENT
OF OBLOGATIONS

PREPARED BY GROUP 3
Jerra Mae De Castro
Vien Jonas Holgado
Abby Gayle Bancoro
Aizhel Macatigbac
Alexis Macalintal
Rosa De roxas
Desiree Mayuga
Aeron Catibog
 Payment or performance
Article 1232 : Payment means not only the delivery of
money but also the performance, in any other manner, of
an obligation.
Meaning of payment
1. In ordinary parlance, payment refers only to the
delivery of money.
2. As a legal mode of extinguishing an obligation, it has a
much wider meaning. Payment may consist of not only in
the delivery of money but also the giving of a thing (other
than money), the doing of an act, or not doing of an act.
When a debtor pays damages or penalty in lieu of the
fulfillment of an obligation (Article 1226), there is also
payment in the sense used in Article 1232.
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.
When debt is is considered paid.
A debt may refer to an obligation to deliver money, to
deliver a thing (other than money), to do an act, or not to do
an act.
1. Integrity of prestation- 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 maybe. Partial or
irregular performance will not produce the extinguishment
of an obligation as a general rule.
2. Identity of the prestation- this second requisite means
that the very prestation due must be delivered or
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.
Article 1235. When the obligee accepts the
performance, knowing its completeness or irregularity,
and without expressing any protest or objection, the
obligation is deemed fully complied with.

Recovery allowed when incomplete or irregular

performance is waived.
The above provision is the other exception to Article
1233. It is founded on the principle of estoppel.
1. If the payment is complete or irregular, the creditor
may properly reject it.
2. In case of acceptance, the law considers that he
waives his right. The whole obligation is extinguished.
Requisites for the application of Article
1235

1. The obligee knows that the performance

is incomplete or irregular.
2. He accepts the performance without
expressing any protest or objection.
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 country.
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.
Persons from whom the creditor must
accept payment
The creditor is bound to accept payment or
performance from the following:
The debtor;
Any person who has an interest in the
obligation (like a guarantor); or
A third person who has no interest in the
obligation when there is stipulation that he
can make payment.
Effect of payment by a Third person
The second paragraph of Article 1236 recognizes that
payment or performance may be made by any person
not incapacitated, even without the knowledge or
against the will of the debtor, and although he has
absolutely no interest in the obligation.
1. If made without the knowledge or against the will of
the debtor- the payer can recover from the debtor only
insofar as the payment has been beneficial to the
latter. In other words, the recovery is only up to the
extent or amount of the debt at the time of payment.
2. If made with the knowledge of the debtor- the payer
shall have the rights of reimbursement and
subrogation, that is, to recover what he has paid (not
necessarily the amount of the debt) and to acquire all
the rights of the creditor.
The payer (sometimes spelled payor) is the
person who pays the payment (money
usually but could be any form of
consideration). The payee is the person to
whom the payment is made in other words,
the person who receives the payment.
 Mode of payment
1. Installment Payment
A series of payments that a buyer makes instead of lump
sum to compensate the seller. Installment payments often,
but do not always, include interest to pay the seller for
accepting the credit risk that the buyer will not make
payments in a timely manner.
2. Cash Payment
Cash is one of the most common ways to pay for
purchases. Both paper money and coins are included
under the larger category of "cash." While cash has the
advantage of being immediate, it is not the most secure
form of payment since, if it is lost or destroyed, it is
essentially gone. There is no recourse to recoup those
3.Personal Cheque Payment
These are ordered through the buyer's
account. They are essentially paper forms
the buyer fills out and gives to the seller. The
seller gives the cheque to their bank, the
bank processes the transaction, and a few
days later the money is deducted from the
buyer's account. With the increasing trend
toward fast payment, cheques are seen as
slow and somewhat outdated.
4.Debit Card Payment
Paying with a debit card takes the money directly out
of the buyer's account. It is almost like writing a
personal cheque, but without the hassle of filling it
out.
5. Credit Card
Credit cards look like debit cards. But paying
with a credit card temporarily defers the buyer's
bill. At the end of each month, the buyer
receives a credit card statement with an
itemized list of all purchases. Therefore, rather
than paying the seller directly, the buyer pays
off its bill to the credit card company. If the
entire balance of the bill is not paid, the
company is authorized to charge interest on the
buyer's remaining balance. Credit cards can be
used for both online purchases and at physical
retailers.
 Special forms of payment
Tender of payment
it is the act on the part of the debtor, of
offering to the creditor the thing or amount
due.
Consignation
is the act depositing the thing or
amount due with the proper court when the
creditor does not desire or cannot receive it,
after complying with the formlities required
by law.
 Application of payment
Is the designation of the debt to which
should be applied the payment made by
debtor who was varous debts of the same
kind in favor of one and the same creditor.
 Special forms of payment
• Payment by cession
Is another special form of payment. it is
the assignment or abdonent of all the
properties of the debtor for the benifit of his
creditors in order that the latter may sell the
same and apply the proceeds thereof to the
satisfaction of their credits.(8 Manresa 321)
Currency
Is money used in exchanges which has
an assigned value and is authorized by law.
Currency laws of countries govern such
issues as the import and export of national
currency, residents' bank accounts abroad,
and conversion and repatriation of export
proceeds. Fro example, cross-border
currency laws may require travelers to
declare the currency they are carrying if over
a certain amount.
 Place of payment
• when used with respect to the Securities
of any series, means the place or places
where the principal of (and premium, if
any) and interest on and any Additional
Amounts with respect to the Securities of
that series are payable
 Expenses
The amount of money that is needed to
pay for or buy something.
Something on which money is spent.
 Loss of the thing due
Article 1262
An obligation which consists in the
delivey of a determinate thing shall be
extinguishment if it should be lost or
destroyed without the fault of the debtor and
he has incurred in delay.
 When a thing considred lost
It is understood that athing is lost when it
perishes or goes out of commerce or disppears
such a way that its existence is unknown ot it
cannot be recovered.(art. 1189 par, 2)
Lost of thing determinate thing under article
1262 is the equivalent of impossibility of
performance in obligations to do referred to in
article 1266. But “loss of the thing due” as used in
article 1231 and the section subtitle, extends to
both obligatons to give and obligations to do.
Effect of partial loss of a specific thing.
There is partial loss when only one portion of
the thing is lost or destroyed or when it suffers
depreciation or deterioration. Partial loss is the
equivalent of difficulty of performance in
obligations to do.
In case of partial loss, the court is given the
discretion in case of disagreement between the
parties, to determinate whether under the
circumstances it is so important in relation to the
whole as to extinguish the obligation. In other
words, the court will decide whether the partial loss
is such as to be equivalent to a complete or total
loss.
Article 1266. The debtor in obligations to
do shall also be released when the
prestation becomes legally or physically
impossible without the fault of the
obligor (1184a)
 Effect of impossiblity of
performance
This article refers to a case when,
without the debtor's fault, the obligations
become legally or physically impossible.
This impossibility must takes place
after the constitution of the obligation. if the
obligation from the very beginning, the
obligation is void known or unknown to the
parties.
ARTICLE 1264.
The courts shall determine
whether, under the circumstances, the
partial loss of the object of obligation is
so important as to extinguish the
obligation
• PARTIAL LOSS OF THING
• There is partial loss when only a portion of the thin is lost or
destroyed or when it suffer depreciation or deterioration.
• Partial loss is the the equivalent of difficulty of performance in
obligations to do
• In case of partial loss, the court is given the discretion in case
of disagreement between the parties, to determine whether
under the circumstances it is so important in relation to the
whole as to extinguish the obligation.
 EFFECT OF DIFFICULTY OF
PERFORMANCE
• The general rule is that impossibility of
performamce releases the obligor
• When the performance of the service has
become so difficult as to be manifestly
beyond the contemplation of both parties,
the court is authorized to release the
obligor in whole or in part
• There is an element of the unforeseen or
fortuitous event in the situation.
ARTICLE 1269
The obligation having been extinguished by
the loss of the thing, the creditor shall have all the
rigjts of action which the debtor may have against
third person by the reason of loss

RIGHT OF CREDITOR TO PROCEED AGAINST THIRD

PERSON
• Under th above article, the creditor is given the right to
proceed against the third person responsible for the loss.
There is no need for an assignment by the debtor.
• The rights of action of the debtor are transferred to the
creditor from the momwnt the obligation is extinguished,
by operation of law to protect the interest of the latter by
reason of the loss
 CONDONATION OR REMISSION OF
DEBT
CONDONATION OR REMISSION
The gratuitous abandoment by the creditor of his right
against the debtor.

REQUISITES OF CONDITION OR REMISSION

The requisites are the following :

1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The parties must have capacity;
4. It must not be inofficious;and
5. If made expressly, it must comply with the forms of
donations
Kinds of remission

1.As to its extent

A.Complete- when it covers the entire obligation
B.Partial- when it does not cover the entire obligation

2.As to its form

A.Express- when it is made either verbally or in writing
B.Implied- when it can only be inferred from conduct

3.As to its date of effectivity

A.Inter vivos- when ir will take effect durimg the lifetime of the
donor
B.Mortis causa- when it will become effective upon the death
of the donor
Article 1273
The renunciation of he principal debt
shall extinguish the accessory obligations;
but the waiver of the latter shall leave the
former.
Effect of renunciation the principal debt
of the accessory obligation
The above provision follow the rule that
the follows the principal. While the
accessory obligations cannot exist without
the principal obligation , the latter may exist
without the former.
Presumption in case thing pledged found
in possession of debtor
In contract of pledge, it is necessary
that the thing pledge be placed in the
possession of theI creditor, or of a third
person by common agreement.( Art. 2093).
A third person who is not a party to the
principal obligation may secure the latter by
pledging his own property.
Confusion or Merger

The meeting in one(1)person of the qualities

of creditor and debtor with respect to the
same obligation. (4 Sanchez Roman 421)
Reasons or basis for confusion
(1)The law treats confusion or merger as a mode
of extinguishing obligation because if a debtor is
his own creditor, enforcement of the onligation
becomes absurd since a person cannot claim
payment from himself.

(2)Furthermore, when there is a confusion of

rights, the purposes for which the obligation may
have been created are deemed realized. (see 8
Manresa 388; Sochayseng vs Tryjillo, 3 Phil 153)
Effects of merger in the person of
guarantor
The extinguishment of the accessory
obligation does not carry with it that of the
principal obligation. Consequently, merger
which takes place in the person of the
guarantor, while it extinguishes the guaranty
leaves the principal obligation in force.
Confusion in a joint obligation
In a joint obligation, there are as many debts
as there are debtors, and as many credits as there
are creditors the debts and/or credits being
considered distinct and separate from one another
(ART 1208)
Each debtor has his own creditor to whom he
is liable and confusion taking place in the person
of any debotrs or creditor does not affect the
others. In other words, the confusion will
extinguish only the share corresponding to the
creditor or debtor on whom the two characters
concur. (ART 1277)
Confusion in a solidary obligation
Merger in the person of one of the solidary
debtors shall extinguish the entire obligation
because it is also a merger in the other solidary
debotrs (ART 1215) Remember that in a solidary
Obligation there is only one obligation and
every debtor is individually responsible for the
payment of the whole obligation.
He who makes payment may claim
reimbursement from his co debtors for the shares
which correspond to them.
Compensation

It is the extinguishment to the concurrent amount of

the debts of two persons who, in their own rights are
debtors and creditors of each other. (Arts. 1278,1290.)
Compensation as a sort of balancing two obligations
simultaneously or to extinguish them to the extent in which
the amount of one is covered by the other. (8 Manresa
401.)
 Kinds of Compensation
Art. 1282
The parties may agree upon the compensation of debts
which are not yet due.
1. Voluntary Compensation
This provision of law is an exeption to the general rule that
only debta which are due and demandable can be
compensated.
Voluntary or conventional compensation includes any
compensation which takes place by aggreement of the
parties even if all the requisites for legal compensation are
not present. This kind of compensation has no special
requisites. It is sufficient that the contract of the parties,
which declares the compensation.
 2. Judicial Compensation
Compensation may also tale place
when sp declared by a final
judgement of a court in a suit. A
party may set off his claim for
damages against his obligations to
the other party by proving his right to
said damages and the amount
thereof.
 3. Legal Compensation
When it take place by operation of law even
without the knowledge of the parties.
 Instances when legal compensation is not
allowed by law

(1.) When one of the debts arises from a depositum

- A deposit is constituted from the moment a person
receives a thing belonging to another with the obligation
of safely keeping it and of returning the same. (Art. 1962.)
(2.) When one of the debts arises from a commodatum
- Commodatum is a gratuitous contract whereby one of the
parties delivers to another something not consumable sa
that the latter may use the same for a certain time and
return it. (Art. 1933.)
 Instances when legal compensation is not
allowed by law

(3.) When one of the debts arises from a claim for support
due by gratuitous title
- "Support comprises everything that is indispensable for
substenance, dwelling, clothing, medical attendance,
education and transfportation, in keeping with the financial
capacity of the family. ( Art. 194, Family Code.)

(4.) When one of the debts consists in civil liability arising

from a penal offense.
- "If one of the debts consists in civil liability arising from a
criminal offense, compensation would be improper and
inadvisable because the satisfaction of such obligation is
imperative." (Report of the Code Commission, p. 134.)
 EFFECT OF ASSIGNMENT OF CREDIT

When compensation has taken place before

assignment.
- The extinguished debt is assigned by the creditor
to a third person, the debtor can raise the defense
of compensation with respect to the debt. The
remedy of the assigneeis against the assignor.
Ofcourse, the right to the compensation maybe
waived by the debtor befre or after the assignment.
 EFFECT OF ASSIGNMENT OF CREDIT

When compensation has taken place after

assignment.
- Article 1285 speaks of three (3) cases of
compensation which take place after an
assignment of rights made by the creditor:
(a.) Assignment with the consent of debtor.
(b.)Assignment with the knowledge but without the
consent of debtor
(c.) Assignment without the knowledge of the
debtor.
 Novation
It is the total or partial extinction of an
obligation through the creation of new one
which substitutes it.
 Kinds of Novation
1.According to origin:
A.Legal- that which takes place by operation
of law (Arts. 1300, 1302; see Art. 1224);
B.Convential- that which takes place by
agreement of the parties.(Arts. 1300, 1301)
2.According to how it is constituted:
A.Express- when it is so declared in
unequivocal terms (Art. 1292)
B.Implied- when the old and the new
obligations are essentially incompatible with each
other.
3.According to extent or effect:
A.Total or extinctive- when the obligation is completely
extinguished.
B.Partial or modifactory- whem the old obligation is
merely modified , the change is merely incidental to the main
obligation.
4. According to the subject:
A.Real orbjective- when the object or principal
conditions of the obligation are changed(art. 1291.)
B.Personal or subjective- whent the person of the
debtor is subtituted and or when third person is subgrogated in
rights of the creditor.
C.Mixed- when the object and or principle conditions of
the obligation and the debtor or the creditor or both the parties,
are changed. It is a combination of a real and personal
novations.
 Requisites of novation
In novation there are four essential
requisites, namely:
1. A previous valid obligation
2. Capacity and intention of the parties to
modify or extinguish the obligation
3. The modification or extinguishment of the
obligation and
4. The creation of a new valid obligation.
 Kinds of personal novation.
Personal novation may be in the form of:

1.Substitution- whent the person of the

debtor is substituted( art. 1291)
2.Subrogation- when a third person is
subgrogated in the rights of the creditor. (art.
1300)
Article 1293
Novation which consists in substituting a
new debtor in the palce of the original one,
may be made the consent of the creditor.
Payment by new debtor gives him the rights
mentioned in articles 1236 and 1237.
 Kinds of substitution
Artcle 1293 speaks of substition which in, in
turn, maybe:
1. Expromission or that which takes place
when a third person of his own initiative and
without the knowledgable or against the will of
the original debtor assumes the latters
obligation with the consent of thecreditor.
2. Delagacion or that which takes palce when
the creditor accepts a third a person to take
place of the debtor at the instance of the latter.
The creditor may withold approval.( art. 1295)
 Subgrogation

Is the substitution of one

person(subrogee) in the place of
creditor(subrigor) with reference to a lawful
or claim or right, giving the former all the
rights of the latter, including the right to
employ all remedies to enforce payment.
 Kinds of subrogation
1. Conventional - when it take place by
express agreement of the original parties (
the debtor and the original creditor) and thw
third person (the new creditor).
2. Legal- when it takes place without
agreement but by operation of law.
Right of new debtor who pays
1. In expromission, payment by the new
debtor gives him the right to beneficial to
reimbursement.
2. If the payment qas made with the consenf
of the original debtor or on his initiative
(delgation), the new debtor is
reimbursement and subgrogation.
 Effect of new debtors insovency or non-
fulfillmentof the obligation in
expromission
Expromission, the new debtor’s
insolvency or nonfulfillment of the obligation
will not receive the action of the creaditor
against the old debtore whose obligation is
extinguished by the assumption of the debt
by the new debtor. Thus, in the second
example above, if there is expromission, D
will no longer be liable to C in case of
insolvency of T or non- fulfillment by T of his
obligation.
 Effect of new debtor’s insolvency or
non- fulfillment of the obligation in
delagacion
This article refers to delagacion(Art
1295). it must be noted that the artcle
speaks only of insolvency. If the non-
fulfillment of the obligation is due to other
causes, the old debtor is not liable.
The general rule that the old debtor was
liable to tge credifor in case of insolvency of
the new debtor.
The exceptions are:

1. The said insolvency was already existing and

of public knowlodge( although it was not known
to the old debtor) at the time of the degacion.

2. The insolvency was already existing and

known to the debtor( although itvwas not of
public knowlege) at the time of the delagacion.
 Effect of novation on accessory
obligations
It provides, however, an exception in
the case of an accessory obligation created in
favor of a third person which remains in force
unless said third person gives his consent to
the novation. This is because a person
should not be prejudiced by the act of another
without his consent.
Articel 1297.
If the new obligation is void., the oroginal one
shall subsist, unless the parties intended that the
former relation should be extinguished in any
event.
Effect where the new oblogation void
Article 1297 stresses one of the essential
requirements of a novation, to wit: the new
obligation must be valid. The general rule is that
there is no novation if the new obligation is void
and, therefore, the original one shall subsist for
the reason that the second obligation being
inexistent, it cannot extinguish or modify the first.
 Effect where the new obligation
voidable
If the new obligation is only voidable,
novatoon can take place. But the moment it
is annulled, the novation must be
considered as not having taken place, and
the original one can be enforced, unless the
intention of the parties is otherwise.
Article 1298
The novation is void if the original obligation was
void, except when annulment may be claimed only
by the debtor, or when ratification validates acts
which are voidable.
Effect where the old obligation void or voidable
This article has its basis also on the requisites of a
valid novation.
A void obligation cannot be novated because there
is nothing wrong to novate. However, if the
original oblogation is onlu voidable (Art.
1390;Note: a voidable obligation is valid until is it
annulled in court.) or if the voidable obligation is
validates by ratification, the novation is valid.
 Effect of legal subrogation
The effect of legal subrogation is to transfer
to the new creditor the credit and all roghts
and actions that could have been exercise
by the former creditor either against the
debtor or against the third persons, be ther
guarrantors or mortgagors. Simply stated,
except only for the change in the person of
the creditor, the obligation subsist in all
respects as before the novation.
 Effect of partial subrogation
The creditor whom partial payment has been
made by the new creditor remains a creditor
to the extent to the balance of the debt.