Review Guide: Articles 1231–1251

Extinguishment of Obligations & Payment or Performance

Article 1231 – How Obligations are Extinguished

Main Point

An obligation ends or is extinguished through the following:

1. Payment or performance

2. Loss of the thing due

3. Condonation or remission of debt (forgiveness)

4. Confusion or merger of rights

5. Compensation

6. Novation

Other causes include annulment, rescission, fulfillment of condition, and prescription.

Simple Explanation

This article lists the ways an obligation can end.

Illustration

Anna borrowed ₱50,000 from Ben payable in 3 months.

Possible ways the obligation can end:

 Payment – Anna pays Ben ₱50,000.

 Loss of thing – If Anna promised to deliver a specific car but it was destroyed by a typhoon
before delivery.

 Condonation – Ben tells Anna she no longer needs to pay.

 Confusion – Anna inherits Ben's property including the debt.

 Compensation – Ben also owes Anna ₱50,000.

 Novation – They change the obligation from money to delivering a laptop.

Article 1232 – Meaning of Payment

Main Point

Payment means not only giving money but performing the obligation.
Simple Explanation

Payment = fulfillment of the obligation, not just cash.

Illustration

Marco hires Leo to repair his roof for ₱10,000.

Payment can happen in two ways:

 Marco gives ₱10,000 (money obligation)

 Leo repairs the roof properly (service obligation)

If Leo finishes repairing the roof according to their agreement, the obligation is considered paid.

Article 1233 – Complete Performance

Main Point

A debt is not considered paid unless the obligation is completely performed.

Simple Explanation

You must fully comply, not partially.

Illustration

Carlos agreed to deliver 100 sacks of rice to Maria.

But he only delivered 70 sacks.

Result:

 The obligation is not yet extinguished

 Carlos must still deliver 30 sacks

Maria can refuse to accept incomplete delivery unless she agrees.

Article 1234 – Substantial Performance

Main Point

If the debtor substantially performs the obligation in good faith, recovery may still be allowed minus
damages.

Simple Explanation

If the performance is almost complete and done honestly, the creditor must still pay but can deduct
damages.
Illustration

A contractor agreed to build a house for ₱1,000,000.

The house is 95% complete, but the contractor forgot to install some door locks and a few light fixtures.

Result:

 The owner must still pay the contractor

 But the owner can deduct the cost of finishing the remaining work

Article 1235 – When Creditor Accepts Incomplete Performance

Main Point

If the creditor accepts incomplete or irregular performance without protest, the obligation is
considered fulfilled.

Simple Explanation

If you accept it willingly, you cannot later complain.

Illustration

Liza ordered 50 custom shirts for her store.

The tailor delivered 48 shirts, and Liza accepted them without complaint and sold them in her store.

Later, she demands the remaining 2 shirts.

Result:

The law may consider the obligation fulfilled, because she accepted the delivery without objection.

Article 1236 – Who May Pay

Main Point

Payment may be made by:

1. The debtor

2. Any person interested in the obligation

3. A third person

But if a third person pays without the debtor's consent, he can only recover what benefited the debtor.

Illustration

John owes Mark ₱20,000.

Possible situations:

 If John authorized Peter, Peter can demand full reimbursement.

 If John did not authorize, Peter can only recover the amount that benefited John.

Article 1237 – Payment by Third Person Who Does Not Intend Reimbursement

Main Point

If a third person pays without intention of reimbursement, it is considered a donation.

Illustration

Clara owes David ₱10,000.

Clara's rich aunt pays the debt and says:

"Don't worry, this is my gift to you."

Result:

 Clara does not need to pay the aunt

 The payment is treated as a donation.

Article 1238 – Payment by Third Person Against Debtor's Will

Main Point

If a third person pays against the debtor's will, the third person cannot compel the creditor to transfer
rights (like mortgage or security).

Illustration

Paul owes Anna ₱100,000 secured by a car mortgage.

Paul tells his friend:

"Do NOT pay my debt."

But the friend pays anyway.

Result:

 The friend may recover the money

 But cannot claim the mortgage security

Main Point

The person paying must have legal capacity and control over the thing being paid.

Illustration

A minor tries to pay a debt using money that belongs to his parents without permission.

Result:

The payment may not be valid because he cannot legally dispose of the property.

Article 1240 – To Whom Payment Must Be Made

Main Point

Payment must be made to:

1. The creditor

2. The creditor's successor

3. A person authorized to receive payment

Illustration

Miguel owes ₱5,000 to Rosa.

Instead of paying Rosa, Miguel gives the money to Rosa's neighbor who is not authorized.

Result:

The debt is not extinguished.

Miguel may have to pay Rosa again.

Article 1241 – Payment to Incapacitated Person

Main Point

Payment to an incapacitated person is valid if the person kept the thing or benefited from it.

Illustration

Tom owes ₱3,000 to a minor named Alex.

Tom pays Alex directly.

If Alex used the money for school supplies, the payment is valid because he benefited from it.
Article 1242 – Payment Made in Good Faith

Main Point

Payment made in good faith to someone in possession of the credit is valid.

Illustration

A debtor pays someone holding the original promissory note, believing that person is the creditor.

Later it turns out the note was stolen.

If the debtor acted in good faith, the payment is still valid.

Article 1243 – Payment After Judicial Order

Main Point

If the court orders the debtor not to pay the creditor, payment made anyway is not valid.

Illustration

A court orders that a debtor must not pay the creditor yet because of a dispute.

The debtor ignores the order and still pays the creditor.

Result:

The payment may not extinguish the obligation.

Article 1244 – Debtor Cannot Change the Object

Main Point

The debtor cannot force the creditor to accept something different.

Illustration

David promised to deliver a specific laptop.

Instead, he offers a tablet of equal value.

The creditor can refuse because it is not what was agreed.

Article 1245 – Dation in Payment (Dacion en Pago)

Main Point

Property may be transferred to the creditor instead of money to settle a debt.

Illustration
Kevin owes a bank ₱200,000.

Instead of cash, Kevin transfers ownership of his motorcycle worth ₱200,000.

If the bank agrees, the debt is extinguished.

Article 1246 – Generic Things

Main Point

If the obligation is generic, the creditor cannot demand superior quality, and the debtor cannot deliver
inferior quality.

Illustration

A contract requires delivery of 100 sacks of rice.

 The creditor cannot demand premium imported rice

 The debtor cannot deliver spoiled rice

The quality must be reasonable or average.

Article 1247 – Expenses of Payment

Main Point

Expenses of payment are usually borne by the debtor, unless otherwise agreed.

Illustration

If the debtor must ship goods to the creditor, the shipping cost is normally the debtor's responsibility.

Article 1248 – Partial Performance

Main Point

The creditor cannot be compelled to accept partial payment unless agreed.

Illustration

A debtor owes ₱100,000.

He offers to pay ₱40,000 now and ₱60,000 later.

The creditor may refuse the ₱40,000.

Article 1249 – Payment in Money

Payment must be made in the currency agreed upon, or legal tender.

Illustration

If the debt is ₱10,000, the debtor cannot insist on paying in foreign coins or goods unless the creditor
agrees.

Article 1250 – Extraordinary Inflation or Deflation

Main Point

If there is extraordinary inflation or deflation, the value at the time the obligation was created will be
followed unless agreed otherwise.

Illustration

In 2010, a person borrowed ₱100,000.

Years later, extreme inflation happens and the value of money drastically changes.

The law may adjust the real value of the payment depending on circumstances.

Article 1251 – Place of Payment

Main Point

Payment must be made:

1. At the place agreed upon

2. If none, where the thing was when the obligation was created

3. If still none, debtor's domicile

Illustration

If a contract says the car must be delivered in Manila, the debtor must deliver it there.

If the contract does not state the place, the law determines where payment must be made.

Remember Article 1231 list:

PL3CN

 Payment

 Loss of the thing

 Condonation

 Confusion

 Compensation

 Novation

Review Guide: Articles 1252–1261

Application of Payments and Related Rules

Article 1252 – Application of Payments

Main Point

If a debtor owes several debts to the same creditor, the debtor may choose which debt the payment
will apply to.

Simple Explanation

When you have multiple debts to the same person, you can decide which one you are paying first.

Illustration

Carlos owes Maria three debts:

 ₱5,000 borrowed in January

 ₱10,000 borrowed in March

 ₱8,000 borrowed in June

Carlos gives Maria ₱5,000 and says:

“Apply this to the January loan.”

Result:

 The January debt is extinguished.

But if Carlos does not specify, other rules will apply (see next articles).

Article 1253 – Interest Must Be Paid First

Main Point
If the debt produces interest, payment is applied first to the interest before the principal.

Simple Explanation

Interest is paid before the original amount.

Illustration

Anna borrowed ₱20,000 from Ben with ₱2,000 interest.

Total obligation = ₱22,000.

Anna pays ₱5,000.

Application:

 ₱2,000 → interest

 ₱3,000 → principal

Remaining principal:

₱17,000.

Article 1254 – If Debtor Does Not Specify

Main Point

If the debtor does not indicate which debt is being paid, the payment is applied to:

1. The most onerous debt (most burdensome)

2. If debts are equal, proportionally

Simple Explanation

If you don’t choose, the law decides.

The law usually prioritizes the most burdensome debt.

Illustration

David owes Clara:

 Debt A – ₱10,000 with interest

 Debt B – ₱10,000 without interest

David pays ₱10,000 but does not say which debt it is for.

Result:

The payment goes to Debt A, because it is more burdensome (it earns interest).
Article 1255 – Dation in Payment / Special Forms of Payment

(Although earlier mentioned, the rule connects with application of payments)

Main Point

The debtor and creditor may agree on different ways of payment as long as they are not illegal.

Simple Explanation

Parties can create their own method of payment if both agree.

Illustration

A debtor owes ₱100,000 but cannot pay in cash.

The creditor agrees that the debtor may instead:

 Transfer a motorcycle

 Provide construction services

If both agree, the obligation may be extinguished.

Article 1256 – When the Creditor Refuses Payment

Main Point

If the creditor unjustly refuses to accept payment, the debtor may:

1. Make a tender of payment, and

2. Consign the payment in court

Simple Explanation

If the creditor refuses to accept payment without reason, the debtor can deposit the payment in court
to extinguish the obligation.

Illustration

Leo owes Mark ₱15,000.

On the due date, Leo goes to Mark's house to pay.

Mark refuses because he is angry with Leo.

Leo then:

1. Offers the payment formally (tender of payment)

2. Deposits the money in court (consignation)

Result:
The obligation may be extinguished.

Article 1257 – Effect of Consignation

Main Point

Once consignation is properly made, the debtor may ask the court to cancel the obligation.

Simple Explanation

Depositing the payment in court releases the debtor.

Illustration

Maria owes ₱30,000 to Jose.

Jose refuses payment.

Maria deposits the amount in court.

After the court approves the consignation:

Maria is released from the debt.

Article 1258 – Requirements of Consignation

Main Point

Consignation is valid only if certain legal steps are followed.

Requirements

1. There must be a valid debt

2. Tender of payment first (except in special cases)

3. Notice to interested parties

4. Deposit of payment in court

5. Notice after consignation

Illustration

Pedro owes ₱8,000.

He simply deposits money in court without notifying the creditor.

Result:

Consignation may not be valid, because legal requirements were not followed.
Article 1259 – Withdrawal of Consigned Payment

Main Point

Before the creditor accepts the consignation, the debtor may withdraw the payment.

Simple Explanation

If the creditor has not yet accepted the deposit, the debtor can take it back.

Illustration

Anna consigns ₱10,000 in court.

Before the creditor accepts it, Anna decides to withdraw it.

Result:

She may withdraw the money, but the obligation still exists.

Article 1260 – Effect if Creditor Accepts Consignation

Main Point

If the creditor accepts the consignation, the obligation is extinguished.

Simple Explanation

Acceptance of the court deposit settles the debt.

Illustration

John owes ₱12,000.

He deposits the money in court after the creditor refused payment.

Later, the creditor accepts the deposit.

Result:

The debt is fully extinguished.

Article 1261 – Withdrawal of Consigned Payment

Main Rule

If the creditor authorizes the debtor to withdraw the consigned payment:

1. The creditor loses preference or security

2. Co-debtors, guarantors, and sureties are released

Illustration
Miguel owes ₱100,000 to Rosa.

The debt is secured by:

 A car mortgage

 A guarantor

Miguel deposits the payment in court (consignation).

Later, Rosa allows Miguel to withdraw the money.

Result:

 Rosa loses the mortgage security

 The guarantor is released from liability

Think of this sequence:

1. Application of payments – 1252–1254

2. Special agreements on payment – 1255

3. Tender of payment and consignation – 1256–1261

Here is a Reviewer Format for Articles 1262–1269 (Civil Code – Obligations and Contracts).
These articles cover the topic Loss of the Thing Due.

Reviewer: Articles 1262–1269

Loss of the Thing Due

Article 1262 – Loss of a Determinate Thing

Main Rule

If the specific (determinate) thing to be delivered is lost or destroyed without the debtor’s fault and
before he is in delay, the obligation is extinguished.

Key Points

The obligation is extinguished if:

1. The thing is determinate or specific

2. The loss happened without debtor's fault

3. The debtor is not in delay

Illustration

Mario promised to deliver his specific horse named Thunder to Anna.

Before the delivery date, a strong earthquake kills the horse.

Conditions:

 The loss was not Mario's fault

 Mario was not yet in delay

Result:

The obligation is extinguished, because the specific object no longer exists.

Article 1263 – Loss in Generic Obligations

Main Rule

In obligations to deliver a generic thing, the obligation is not extinguished by loss.

Legal Principle

Genus never perishes (genus nunquam perit).

Explanation

If the obligation involves generic goods, the debtor can still obtain another item of the same kind.

Illustration

Carlo promised to deliver 100 sacks of rice to Ben.

Before delivery, the rice stored in Carlo's warehouse was destroyed by fire.

Result:

The obligation is NOT extinguished, because rice is a generic thing and Carlo can buy rice elsewhere.

Article 1264 – Partial Loss

Main Rule

If the thing is partially lost, the court determines whether the obligation is extinguished or reduced
depending on circumstances.

Illustration

Lara promised to deliver her specific painting collection of 5 pieces to Mark.

Result:

The court will decide whether:

 The obligation should still continue, or

 The obligation should be modified or extinguished.

Article 1265 – Loss Due to Debtor’s Fault

Main Rule

If the loss of the thing is due to the debtor's fault, the debtor must pay damages.

Illustration

David promised to deliver his specific sports car to John.

Before delivery, David recklessly drove the car and crashed it.

Result:

David is liable for damages because the loss was his fault.

Article 1266 – Impossibility of Performance

Main Rule

The debtor is released if the obligation becomes legally or physically impossible without his fault.

Explanation

If performance becomes impossible due to circumstances beyond control, the obligation may be
extinguished.

Illustration

A singer agreed to perform at a concert.

Before the event, the government bans public gatherings due to a national emergency.

Result:

The obligation is extinguished because performance became legally impossible.

Article 1267 – Extraordinary Difficulty

Main Rule
When performance becomes extremely difficult due to extraordinary circumstances, the debtor may
ask the court to release him from the obligation.

Legal Principle

Doctrine of Rebus Sic Stantibus (things stand as they are).

Illustration

A contractor agreed to build a bridge for ₱10 million.

After the contract:

 A war happens

 Construction materials become 10 times more expensive

The contractor may ask the court to modify or release the obligation because the burden became
extremely difficult.

Article 1268 – Loss in Criminal Offense

Main Rule

If the obligation arises from a criminal offense, the debtor is not relieved of liability even if the thing is
lost, unless the creditor caused the loss or mora accipiendi.

Illustration

A thief stole a gold necklace from Maria.

Later, the necklace was destroyed in a fire.

Result:

The thief must still pay damages because the obligation came from a crime.

Article 1269 – Creditor’s Rights Against Third Persons

Main Rule

If the obligation is extinguished due to the loss of the thing, the creditor acquires all the rights of action
the debtor may have against third persons responsible for the loss.

Simple Explanation

If someone else caused the loss, the creditor may go after that third person.

Illustration

Luis promises to deliver his specific car to Marco.

Because of the accident:

 The obligation to deliver the car is extinguished.

However:

 Luis has the right to sue the reckless driver for damages.

Under Article 1269:

➡ Marco (the creditor) can use Luis’s right to sue the driver to recover the value of the car.

Reviewer: Articles 1271–1277

Civil Code – Condonation / Remission and Confusion (Merger)

________________________________________

Article 1271 – Voluntary Delivery of Private Document

Codal Rule

“The delivery of a private document evidencing a credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action which the former had against the latter.”

(Civil Code, Art. 1271)

Meaning

If the creditor voluntarily gives the written proof of the debt to the debtor, the law presumes the
creditor renounced or forgave the debt.

Illustration

D signs a promissory note for ₱20,000 payable to C.

Later, C hands the original promissory note back to D without asking for payment.

➡ The law presumes C remitted the debt, unless there is proof showing otherwise.

________________________________________

Article 1272 – Possession of the Document by the Debtor

Codal Rule

“Whenever the private document in which the debt appears is found in the possession of the debtor,
it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved.”

(Civil Code, Art. 1272)

Meaning
If the debt document is found with the debtor, the law presumes the creditor voluntarily gave it to
him, which suggests remission of the debt.

Illustration

A promissory note signed by Alex is later found in Alex’s possession.

➡ The law presumes the creditor returned it voluntarily, meaning the debt may have been forgiven,
unless the creditor proves otherwise (for example, that it was stolen).

________________________________________

Article 1273 – Effect on Accessory Obligations

Codal Rule

“The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of
the latter shall leave the former in force.”

(Civil Code, Art. 1273)

Meaning

Forgiving the main debt cancels the accessory obligations.

Forgiving an accessory obligation does not cancel the main debt.

Illustration

Debt: ₱100,000

Accessory: mortgage on land

If the creditor forgives the ₱100,000 debt

➡ the mortgage is also extinguished.

If the creditor cancels only the mortgage

➡ the ₱100,000 debt still exists.

________________________________________

Article 1274 – Remission of Pledge

Codal Rule

“It is presumed that the accessory obligation of pledge has been remitted when the thing pledged,
after its delivery to the creditor, is found in the possession of the debtor or of a third person who owns
the thing.”

(Civil Code, Art. 1274)

Meaning
If the thing pledged as security is returned, the law presumes the pledge was remitted.

Illustration

B borrows ₱50,000 from C and pledges a watch as collateral.

Later the watch is found back in B’s possession.

➡ The law presumes the pledge obligation was remitted.

(The debt may still exist unless it was also condoned.)

________________________________________

Article 1275 – Confusion or Merger

Codal Rule

“The obligation is extinguished from the time the characters of creditor and debtor are merged in the
same person.”

(Civil Code, Art. 1275)

Meaning

If one person becomes both the creditor and the debtor, the obligation disappears.

Illustration

A owes B ₱40,000.

Later A inherits B’s estate, including the credit.

➡ A becomes both debtor and creditor.

➡ The obligation is extinguished by merger.

________________________________________

Article 1276 – Merger in the Principal Obligation

Codal Rule

“Merger which takes place in the person of the principal debtor or creditor benefits the guarantors.”

(Civil Code, Art. 1276)

Meaning

If the principal obligation is extinguished by merger, the guarantor is also released.

Illustration

A owes B ₱60,000.

C is the guarantor.
Later A becomes the creditor by inheritance.

➡ The principal obligation disappears.

➡ The guarantor is also released.

________________________________________

Article 1277 – Merger in the Person of the Guarantor

Codal Rule

“Confusion which takes place in the person of the guarantor does not extinguish the principal
obligation.”

(Civil Code, Art. 1277)

Meaning

If merger happens only in the guarantor, the main obligation still exists.

Illustration

A owes B ₱30,000.

C is the guarantor.

Later C becomes the creditor by assignment of the credit.

➡ The guaranty disappears, but

➡ A still owes the ₱30,000.

Reviewer: Articles 1278–1290

Compensation (Mode of Extinguishing Obligations)

Article 1278 – Concept of Compensation

Codal Rule

Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other.

Meaning

Compensation happens when two people owe each other, and their debts offset each other.

Instead of both paying, the law cancels the debts up to the concurrent amount.

Illustration

A owes B ₱10,000.
B owes A ₱7,000.
Through compensation:

 ₱7,000 cancels each other

 A only needs to pay ₱3,000.

Article 1279 – Legal Compensation (Requisites)

Codal Rule

Compensation takes place when the following are present:

1. Each party is principal debtor and creditor of the other.

2. Both debts consist of money or consumable things of the same kind and quality.

3. Both debts are due.

4. Debts are liquidated and demandable.

5. There is no retention or controversy by third persons.

Explanation

If all these conditions exist, compensation happens automatically by law.

Illustration

X owes Y ₱50,000 due today.

Both debts are:

 money

 due

 liquidated

 demandable

➡ Legal compensation occurs automatically, and both debts are extinguished.

Article 1280 – Compensation by Guarantor

Codal Rule:

Notwithstanding the preceding article, the guarantor may set up compensation as regards what the
creditor may owe the principal debtor.
Explanation:
Even if the principal debtor cannot set up compensation under the usual requisites, the guarantor can
set it up for what the creditor owes the principal debtor.

Illustration:

 A owes B ₱5,000.

 C is guarantor for A.

 B owes A ₱5,000.
➡ C may set off B’s debt to A against A’s obligation to B.

Article 1281 – Total or Partial Compensation

Codal Rule:

Compensation may be total or partial. When the two debts are of the same amount, there is total
compensation.

Explanation:

 Total compensation = debts are equal → both debts extinguished.

 Partial compensation = debts differ → extinguish only up to lesser amount.

Illustration:

 A owes B ₱15,000, B owes A ₱10,000.

Article 1282 – Compensation of Debts Not Yet Due

Codal Rule:

The parties may agree upon the compensation of debts which are not yet due.

Explanation:
Even if one or both debts are not yet due, the parties can agree in writing to compensate them.

Illustration:
A owes B ₱20,000 due next year.
B owes A ₱20,000 due next year.
➡ They agree today to compensate the debts.

Article 1283 – Compensation for Damages

Codal Rule:
If one party in a suit has a claim for damages against the other, the former may set it off by proving
his right and amount thereof.

Explanation:
Damages due from one party can be set off against debts owed to the other.

Illustration:
A sues B for ₱30,000 damages.
B owes A ₱30,000.
➡ B can set off his debt against the damages claimed.

Article 1284 – Compensation of Voidable or Rescissible Debts

Codal Rule:

When one or both debts are rescissible or voidable, they may be compensated before judicial
rescission or avoidance.

Explanation:
Even if a debt can be voided later by court, compensation can still occur before that happens.

Illustration:
Debt A and Debt B are both voidable.
Both may still be set off now before court action.

Article 1285 – Assignment and Compensation

Codal Rule:
The ability of the debtor to set up compensation depends on whether he knew about or consented to
the assignment of the creditor’s rights.

Key Points:

1. If the debtor consented to assignment and reserved his right to compensation → he cannot
use it against assignee.

2. If debtor did not consent → he may use compensation for debts before notice.

3. If assignment was made without knowledge of debtor → he may set off all debts before and
up to notice.

Illustration:
B assigns his credit to D.
A owes B, and B owes A.
➡ A’s right to set off depends on notice/consent.
Article 1286 – Different Places of Payment

Codal Rule:

Compensation takes place by operation of law even though debts are payable in different places, but
indemnity for expenses of exchange or transport must be given.

Explanation:
Different places of payment do not prevent compensation; the debtor must reimburse any costs
incurred because of different locations.

Article 1287 – Debts That Cannot Be Compensated

Codal Rule:
Compensation does not apply when one debt arises from:

1. Deposit (depositum)

2. Commodatum or bailment

3. Support due gratuitously (family support)

Explanation:
These obligations require return of specific things or involve compulsory duties that the law does not
allow to be set off.

Article 1288 – Civil Liability from Penal Offense

Codal Rule:

No compensation if one debt is civil liability from a crime.

Explanation:
Obligations arising from crimes cannot be compensated with ordinary debts.

Article 1289 – Multiple Debts Susceptible to Compensation

Codal Rule:
If a person has several debts that can be compensated, the rules on application of payments apply to
decide the order.

Explanation:
Use the guidelines from Articles 1252–1254 (application of payments) to determine which debts get
set off first.

Article 1290 – Operation of Law

When all requisites of Article 1279 are present, compensation takes effect by operation of law,
extinguishing both debts to the concurrent amount, even without the parties being aware.

Explanation:
Legal compensation is automatic once the conditions are met.