Art. 1231.

Obligations are extinguished

Article 1231 of the Civil Code enumerates 6 causes of the extinguishment of obligation, to wit,
by payment or performance; by the loss of the thing due; by the condonation or remission of
the debt; by the confusion or merger of the rights of creditor and debtor; by compensation; and
by novation.

Other provisions in the code, provides that it may be through renunciation or waiver by the
obligee or creditor; compromise; expiration of the resolutory term or period; death of one of
the contracting parties in purely personal obligations; the will of one of the contracting parties in
certain contracts; or the agreement of both contracting parties or what is sometimes known as
mutual assent or dissent

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

Concept of Payment or Performance

Payment may consist 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.

For instance, if L obliges to give N his Tesla Model X car, payment is made by delivering the said
car. Here, payment is made by the giving of a thing. Another, if Vince obliges to repair the Stradivarius
Lipinski violin of Yoona, payment is made by performing the service.

Hence, payment is not only the delivery of money but also the performance of the obligation.

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.

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 incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully complied with.

When Obligation Is Understood Paid or Performed: Art 1233

A debt is understood to be paid once the thing or service in which the obligation consists has
been completely delivered or rendered.

Here, if Nina is bound to pay ASA 1,500.00 for her loan, the giving of 750.00 shall mean the
fulfilment of the obligation is not complete and ASA may refuse to accept 750.00.
Exceptions: Art 1234 (doctrine of substantial performance) & Art 1235 (partial performance)

1. A debt may also be deemed paid when the obligation has been substantially performed in
good faith or when the obligation is partially complied and the obligee accepted it without
protest or objection.

For example, Automarken is bound to deliver a 4X4 Nissan Pick-up truck to COA however; an
additional security feature of the said vehicle was not attached due to its unavailability in the
market and the same was communicated to COA. There is already a substantial performance in
this case and Automarken acted in good faith, thus, the obligation is completed. However, the
failure to make the full performance shall be compensated in damages to be deducted from the
payment to be made by COA.

In the second exception, it is important that the obligee is notified that the obligation is
only partially performed and that 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 contrary.

Art. 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.

Art. 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.

Persons Who May Pay Obligation

The debtor himself or his legal representative and any third person.

Payment by a third person

A 3rd person may pay the obligation whether he has interest in obligation or not and even when
debtor doesn’t know such payment or has not consented. In sale with right to repurchase or pacto de
retro sale, payment by third person cannot be applied.

Right of creditor (Art 1236)

The creditor is not bound as a general rule to accept payment or performance by a third person.
Exception to this rule is when it is made by a third person who has an interest in the fulfillment of the
obligation, such as a joint debtor, guarantor or surety; and when there is a stipulation to the contrary.
Rights of third person (Art 1237)

A third person can recover the payment he made to a debtor and he is entitled to subrogation if
the payment is with the knowledge and consent of the debtor. However, if the payment is made without
the debtor’s knowledge or consent, he may only recover the payment he made which is beneficial to the
debtor.

For instance, with Alex’s consent, Leni, a third person not interested in the obligation, paid the
remaining debt of Alex from Pinty. Leni can recover the payment she made to Alex and the latter’s rights
may be subrogated to her. But, if the payment was paid without Alex’s consent, Leni can recover the
payment that is beneficial to the former only.

Thus, the rights of a third person for reimbursement and subrogation, are subject to the
debtor’s consent or knowledge.

Right of reimbursement

This right is subject to the debtor’s consent or knowledge. If there is consent or knowledge,
payment made may be recovered in full. On the other hand, lack of knowledge or consent shall diminish
such right. In such case, reimbursement may be made only in so far as that part of payment that is
beneficial to the debtor.

Right of subrogation

If the payment was effected with the knowledge and consent of the debtor, the third person
who made the payment shall be subrogated to all of the rights which the creditor could have exercised,
not only against the debtor, but even against third persons. If the payment, however, was effected
without the knowledge or against the will of the debtor, the third person who made the payment
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage,
guaranty, or penalty.

Gratuitous payments (Art 1238)

Payment by a third person where debtor does not intend to be reimbursed is deemed to be a
donation. However, if the creditor accepts the payment, it shall be valid as to him and the payor
although the debtor did not give his consent to the donation.

To illustrate, Bob owes Chen 1,000. Bob’s friend Han paid the former’s debt to Chen without the
intention of being reimbursed. Bob thanked his friend for the latter’s generosity.

In this case, Bob is not liable to pay Han and his obligation to Chen is extinguished. But if Bob did
not consent to the donation, Han may recover from Bob since there has been no donation, although Bob
did not intend to be reimbursed. Nevertheless, the obligation of Bob to Chen is extinguished because
the payment is valid as to Chen 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.”

Capacity To Make Payment

In obligations to give, it is necessary that the one who effect the payment is legally capacitated
otherwise the payment made is invalid and the obligation is not extinguished. If the payment is accepted
by the creditor, it may be annulled through a proper action of the court at the instance of the payor or
legal representative.

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.

To Whom Payment Must Be Made

As a general rule, payment must 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.

Persons authorized to receive payment

The person authorized to receive the payment refers not only to a person authorized by the
creditor, but also to a person authorized by law to do so such as to a guardian, or to the executor or
administrator of the estate of a deceased person, or to the assignee or liquidator of a partnership or
corporation.

Payment to unauthorized persons

It shall be invalid if payment is made to persons not authorized by the creditor or by law.

Exceptions (Art 1240 & Art 1241)

There are two exceptions. First, payment made to a third person provided it has redounded to
the creditor. Second, payment made to the possessor of the credit, provided that it was made in good
faith.

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 to Incapacitated Persons

In obligations to give, payment to incapacitated person shall be be valid if he has kept the thing
delivered, or insofar as the payment has been beneficial to him.

For instance, Lee owes 5M to Ben who won the 50M Lottery draw. Ben who can’t believe his
fortune became insane. As such, Lee can consign his payment to the court or pay for the rehabilitation
of Ben or such others beneficial to the latter. The payment then shall be deemed valid. Another option is
by giving it to Ben as long as the money is not wasted by the latter.

Payment to Third Persons

In obligation to give, if payment is made to a third person, it is essential that it has redounded to
the benefit of the creditor with conclusive proof of such. Thus, even granting that the payment to a third
person was made through mistake and in good faith, the debtor can still be held liable.

Article 1242. Payment made in good faith to any person in possession of the credit shall release the
debtor.

Payment to Possessors of Credit

In obligations to give, payment to possessors of credit and not merely the document evidencing
the payment and when made in good faith shall extinguish the debtor’s obligation.

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.

Payment After Judicial Order of Retention

When a debtor has duly received a judicial order of retention, payment can no longer be made
to the creditor whose credit has been attached to satisfy a judgment in favor of another person.
Payment should be made to the proper officer of the court issuing the writ of attachment or
garnishment in conformity with the provisions of the Rules of Court.

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 the
obligee’s will.

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.

Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose
quality and circumstances have not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and
other circumstances shall be taken into consideration.

What Must Be Paid (Art 1244)

There are two rules. One, if the obligation is to give and the thing to be delivered is a specific or
determinate thing, the debtor cannot replace it with another even if it is of the same value or even of
higher value. If the obligation is to do or not to do, and the object is an act or forbearance which is a
specific or determinate thing, such act or forbearance cannot be substituted by another. In both cases,
the creditor or obligee cannot be compelled to accept the delivery of the thing or the substitution of the
act or forbearance. However, if he accepts the delivery or substitution, such acceptance shall give to the
delivery or substitution the same effect as a fulfillment or performance of the obligation.

Effect of dation in payment (Art 1245)

Dation en pago or dation in payment is an exception to the rules prescribed in Article 1244.

Here, there is an objective novation and such change is deemed an accepted equivalent of the
performance of obligation.

Say for instance, R owed M 50,000.00 due at the end of 2012; on January 1, 2013 when the
obligation became demandable, R agreed to convey a portion of his lot to M as the accepted equivalent
of the obligation; the lot now becomes the object and the loan of 50,000.00 is the purchase price.

Thus, the effect of a dacion en pago is the transformation of a previous contract into a contract
of sale. Consequently, it is the law of sales that will govern.

Effect if object is generic (Art 1246)

Article 1246 is a principle of equity in that it supplies justice in cases where there is lack of
precise declaration in the obligation of the quality or kind of thing to be delivered. It is always hard to
find one thing that is exactly similar to another. If there is disagreement between the parties, the law
steps in and determines whether the contract has been complied with or not according to the
circumstances.

If KC promised to deliver a laptop computer to LA. LA cannot compel KC to deliver a core i-8
laptop neither can the latter require the former to accept a core i-3 laptop.

However, the benefit of this article is deemed waived if the obligee accepted an inferior quality
or if obligor delivered a higher quality.

Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.

Expenses of Payment

The extrajudicial expenses of payment are for the account of the debtor. The reason is that the
obligation is extinguished when payment is made and it is, therefore, the debtor who is primarily
benefited.

If the parties have made a stipulation as to who will bear the expenses, then their stipulation
shall be followed. Article 1247 does not apply to expenses incurred by the creditor in going to the
debtor’s domicile to collect. (Art. 1251.)
Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the debtor be required
to make partial payments. However, when 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.

Character of Payment

The three characteristics of payment are, identity, completeness and indivisibility.

If the pre-war obligation contains stipulation that payment must be made in certain currency, for
payment to be valid, it must made in the currency stipulated. Hence, if payment was made in Japanese
military notes and the creditor refused to accept it, it would not be valid even if it was followed by
consignation.

In the words of the Supreme Court: “A payment made by a debtor during the enemy occupation
of a pre-war debt or obligation with Japanese notes and accepted by the creditor, is valid and
extinguishes the former’s obligation.’’

Checks are not legal tender and it logically follows that delivery of such shall not produce the
effect of payment.

In such case, the creditor may or may not accept the check for the extinguishment of obligation.
But once it is cleared and credited to the account of the creditor, it is equivalent to the delivery to the
creditor in cash and thus, at that point obligation is extinguished.

Therefore, to effect a check as a mode of payment, it is necessary that it be made available to