EXTINGUISHMENT OF

OBLIGATIONS
ARTICLE 1231 - 1304
 ARTICLE
Obligations are extinguished:
( ) 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;
( ) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, ful llment of a resolutory condition,
and prescription, are governed elsewhere in this Code. ( a)
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 ARTICLE

Payment means not only the delivery of

money but also the performance, in any
other manner, of an obligation.
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Burden of proving payment
Burden of proof is the duty of a party to present
evidence of the facts in issue necessary to prove the
truth of his claim or defense by the amount of
evidence required by law.

The debtor has the burden of showing with legal

certainty that the obligation has been discharged by
payment.

 ARTICLE
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.
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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
may be.

Partial or irregular performance will not

produce the extinguishment of an obligation as
a general rule.

 EXAMPLE:
( ) D bound himself to pay C P , . . D is giving only
P , . . C can refuse to accept P , . because the
ful llment is not complete.

( ) X agreed to paint the house of Y for P , . . X did

not paint the kitchen anymore and instead asked Y to pay
him P , . less the cost of painting the kitchen. Y can
refuse to pay X because the debt of Y(to deliver money) will
arise only after the debt of X (to paint the house)is
completely rendered.
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ARTICLE

If the obligation has been substantially

per-formed in good faith, the obligor may
recover as though there had been a strict
and complete ful llment, less damages
suffered by the obligee.
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 EXAMPLE:

S obliged himself to sell , bags of cement to B for a certain price.

However, despite diligent efforts on his part, S was able to deliver only
bags because of cement shortage. Take note that S wants to comply
with his obligation to deliver the entire , bags but he could not do so
for reasons beyond his control.

Under Article , S can recover as though there had been complete

delivery less the price of the bags. In other words, B cannot require S
to deliver rst the remaining bags as a condition to his liability for the
price. He must pay for the bags and enforce his right to damages for
failure of S to deliver the difference. It is incumbent upon S, however,
toexplain satisfactorily his failure to make complete delivery.
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 ARTICLE .

When the obligee accepts the

performance, knowing its incompleteness
or irregularity, and without ex-pressing
any protest or objection, the obligation is
deemed fully complied with.
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 Acceptance of incomplete or
irregular payment

This is so because the creditor is

considered to be in estoppel or to have
waived his right to enforce the complete
or regular payment of the obligation.
Example:

D is obliged to paint red the car of C. D painted the car but the
color bordered on maroon. C accepted the performance although
it was irregular and he did not express any protest or objection to
it. In this case, D is deemed to have ful lled his obligation.

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 ARTICLE
The creditor is not bound to accept payment or performance
by a third person who has no interest in the ful llment 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 bene cial to the
debtor. ( a)
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ARTILCE
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.
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1. Payment made by a third person.

The creditor cannot be compelled to accept payment from a third

person because the creditor may not have the con dence in the honesty
of the third person who might deliver a defective thing or pay with a
check which may not be honored. The following are the exceptions:

a. When there is a stipulation to that effect.

Example:

D borrowed P , from C. On due date, T, a third person, offered to

pay D’s debt. C here cannot be compelled to accept the payment being
offered by T. However, if D and C agreed that payment may be made by
another person, then C has to accept the payment being offered by T.

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B. When the third person has an interest in the ful llment

of the obligation (such as in the case of guarantor or co-
debtor)

Example:

D obtained loan or P , from C. The debt is guaranteed

by G. G, as a guarantor, may compel C to accept payment
from him for D’s debt.

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 2. Rights of a third person making the payment.

a. Payment without the knowledge or against the will of the debtor.

- he can recover from the debtor but only in so far as the payment was
bene cial to the latter.

- he is not entitled to the subrogated in the rights of the creditor.

Subrogation transfers tot he person surrogated the credit with all the
rights thereto appertaining, either against the debtor or against rd
persons, be they guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation.
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Example:

D borrowed P , from C. The debt is guaranteed by G. D

paid C P , leaving a balance of P , on his debt.
Later T, without D’s knowledge, paid the amount of P ,
to C believing that D still owed that amount. T here can
recover from D only the amount of P , which is the
amount bene cial to D. If D cannot pay, T cannot go after G,
the guarantor because he is not entitled to be surrogated in
the rights of C. T’s remedy is to go after C to collect the
amount of P , as this is a case of solutio indebiti.
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 G
guarantor

,
D C

Paid Partial: P ,
Balance: P ,
T can go after D Refund for ,
for the , only T
Third
person
Without D’s knowledge
Paid ,
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b. Payment made with consent of the debtor

-He can recover from the debtor what he has paid

-He shall be entitled to be subrogated in the rights of the creditor.

Example:

D borrowed P , from C. The debt is secured by a mortgage of Ds

lot. With the consent of D, T paid C P , . In this case, T can
recover the amount he paid from D. If D cannot pay, T can foreclose
the mortgage on the lot because he is entitled to subrogation.

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ARTICLE .

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)
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EXAMPLE:

D owes C P , . . Without the intention of being reimbursed, X

paid D’s obligation. D had previously accepted X’s generosity.

In this case, D is not liable to X and his obligation to C is

extinguished. But if D did not consent to the donation, X may recover
from D sincethere has been no donation, although originally X did
not intend to be reimbursed. Nevertheless, the obligation of D to C is
extinguished because the payment is valid as to C who has accepted it.

Can D legally refuse to pay X and instead insist on paying C? No.

(see Arts. , par. ; .)

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 ARTICLE
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 provisionsof Article under the
Title on “Natural Obligations.’’
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 Meaning of free disposal of thing due
and capacity to alienate.

( ) Free disposal of the thing due means that the thing to be delivered

must not be subject to any claim or lien or encumbrance of a third

person.

( ) Capacity to alienate means that the person is not incapacitated

to enter into contracts (Arts. , .) and for that matter, to make a

disposition of the thing due.

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ARTICLE

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.
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Person to whom payment shall be made.

Payment shall be made to:

(a) the creditor or obligee (person in whose favor the

obligation has been constituted);

(b) his successor in interest (like an heir or assignee); or

(c) any person authorized to receive it.

 ILLUSTRATIVE CASES:

. Payment was made to a person not authorized by the seller to receive payment.

Facts: B bought a certain electric plant from S. B paid C who was authorized by
C to look for buyers of the plant. There was no evidence that C had authority to
receive payment. S brought action to recover the price.

Issue: Is there valid payment to S?

Held: No. C was not duly authorized by S to receive payment. Where a person in
making payment solely relied upon the representation of an agent as to his
authority to receive payment, such payment is made at hisown risk and where
the agent was not so authorized, such payment is not a valid defense against the
principal. (Keeler Electric Co. vs. Rodriguez, Phil. [ ]; Ormachea Tin
Congco vs. Trillana, Phil. [ ].)
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 ARTICLE .
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 bene cial to him. Payment made
to a third person shall also be valid insofar as it has redounded to
the bene t of the creditor. Such bene t to the creditor need not
be proved in the following cases:
( ) If after the payment, the third person acquires the creditor’s
rights;
( ) If the creditor rati es the payment to the third person;
( ) If by the creditor’s conduct, the debtor has been led to believe
that the third person had authority to receive the payment. ( a)
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 Effect of payment to an incapacitated creditor

As a general rule, payment to an incapacitated creditor is not valid.

The following are the exceptions:

a. If the incapacitated creditor has kept the thing delivered.

Example: D borrowed P , from C. The debt is due after months.

On the due date, D paid C P , but at that time, C had already
become insane. Of the amount received by C, P , was lost, while
the rest was still in C’s possession. Payment, in this case, is valid only
up to P , .
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 b. Insofar as the payment has been bene cial to him.

Example:

Assume that in the preceding example, P , was used by C to buy

food, while the rest was spect for his hospitalization. In this case,
payment will be valid in its entirety because C was bene ted up to the
full amount. But if P , was lost by C to a swindler, while the rest
was spent for his hospitalization, then payment will be laid only up to
P , , the amount bene cial to C.
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