capacity to alienate it shall not be valid, without prejudice

Art. 1231. Obligations are extinguished: to the provisions of Article 1427 under the Title on
"Natural Obligations." (1160a)
(1) By payment or performance:
Art. 1240. Payment shall be made to the person in
(2) By the loss of the thing due: whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to
(3) By the condonation or remission of the debt;
receive it. (1162a)
(4) By the confusion or merger of the rights of creditor
Art. 1241. Payment to a person who is incapacitated to
and debtor;
administer his property shall be valid if he has kept the
(5) By compensation; thing delivered, or insofar as the payment has been
beneficial to him.
(6) By novation.
Payment made to a third person shall also be valid
Other causes of extinguishment of obligations, such as insofar as it has redounded to the benefit of the creditor.
annulment, rescission, fulfillment of a resolutory Such benefit to the creditor need not be proved in the
condition, and prescription, are governed elsewhere in following cases:
this Code. (1156a)
(1) If after the payment, the third person acquires the
creditor's rights;
SECTION 1. - Payment or Performance
(2) If the creditor ratifies the payment to the third person;

(3) If by the creditor's conduct, the debtor has been led

Art. 1232. Payment means not only the delivery of
to believe that the third person had authority to receive
money but also the performance, in any other manner, of
the payment. (1163a)
an obligation. (n)
Art. 1242. Payment made in good faith to any person in
Art. 1233. A debt shall not be understood to have been
possession of the credit shall release the debtor. (1164)
paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as Art. 1243. Payment made to the creditor by the debtor
the case may be. (1157) after the latter has been judicially ordered to retain the
debt shall not be valid. (1165)
Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as Art. 1244. The debtor of a thing cannot compel the
though there had been a strict and complete fulfillment, creditor to receive a different one, although the latter
less damages suffered by the obligee. (n) may be of the same value as, or more valuable than that
which is due.
Art. 1235. When the obligee accepts the performance,
knowing its incompleteness or irregularity, and without In obligations to do or not to do, an act or forbearance
expressing any protest or objection, the obligation is cannot be substituted by another act or forbearance
deemed fully complied with. (n) against the obligee's will. (1166a)
Art. 1236. The creditor is not bound to accept payment Art. 1245. Dation in payment, whereby property is
or performance by a third person who has no interest in alienated to the creditor in satisfaction of a debt in
the fulfillment of the obligation, unless there is a money, shall be governed by the law of sales. (n)
stipulation to the contrary.
Art. 1246. When the obligation consists in the delivery of
Whoever pays for another may demand from the debtor an indeterminate or generic thing, whose quality and
what he has paid, except that if he paid without the circumstances have not been stated, the creditor cannot
knowledge or against the will of the debtor, he can demand a thing of superior quality. Neither can the
recover only insofar as the payment has been beneficial debtor deliver a thing of inferior quality. The purpose of
to the debtor. (1158a) the obligation and other circumstances shall be taken
into consideration. (1167a)
Art. 1237. Whoever pays on behalf of the debtor without
the knowledge or against the will of the latter, cannot Art. 1247. Unless it is otherwise stipulated, the
compel the creditor to subrogate him in his rights, such extrajudicial expenses required by the payment shall be
as those arising from a mortgage, guaranty, or penalty. for the account of the debtor. With regard to judicial
(1159a) costs, the Rules of Court shall govern. (1168a)
Art. 1238. Payment made by a third person who does Art. 1248. Unless there is an express stipulation to that
not intend to be reimbursed by the debtor is deemed to effect, the creditor cannot be compelled partially to
be a donation, which requires the debtor's consent. But receive the prestations in which the obligation consists.
the payment is in any case valid as to the creditor who Neither may the debtor be required to make partial
has accepted it. (n) payments.
Art. 1239. In obligations to give, payment made by one However, when the debt is in part liquidated and in part
who does not have the free disposal of the thing due and unliquidated, the creditor may demand and the debtor
may effect the payment of the former without waiting for If the debts due are of the same nature and burden, the
the liquidation of the latter. (1169a) payment shall be applied to all of them proportionately.
(1174a)
Art. 1249. The payment of debts in money shall be made
in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal SUBSECTION 2. - Payment by Cession
tender in the Philippines.

The delivery of promissory notes payable to order, or Art. 1255. The debtor may cede or assign his property to
bills of exchange or other mercantile documents shall his creditors in payment of his debts. This cession,
produce the effect of payment only when they have been unless there is stipulation to the contrary, shall only
cashed, or when through the fault of the creditor they release the debtor from responsibility for the net
have been impaired. proceeds of the thing assigned. The agreements which,
on the effect of the cession, are made between the
In the meantime, the action derived from the original
debtor and his creditors shall be governed by special
obligation shall be held in the abeyance. (1170)
laws. (1175a)
Art. 1250. In case an extraordinary inflation or deflation
of the currency stipulated should supervene, the value of
the currency at the time of the establishment of the SUBSECTION 3. - Tender of Payment and Consignation
obligation shall be the basis of payment, unless there is
an agreement to the contrary. (n)
Art. 1256. If the creditor to whom tender of payment has
Art. 1251. Payment shall be made in the place been made refuses without just cause to accept it, the
designated in the obligation. debtor shall be released from responsibility by the
consignation of the thing or sum due.
There being no express stipulation and if the undertaking
is to deliver a determinate thing, the payment shall be Consignation alone shall produce the same effect in the
made wherever the thing might be at the moment the following cases:
obligation was constituted.
(1) When the creditor is absent or unknown, or does not
In any other case the place of payment shall be the appear at the place of payment;
domicile of the debtor.
(2) When he is incapacitated to receive the payment at
If the debtor changes his domicile in bad faith or after he the time it is due;
has incurred in delay, the additional expenses shall be
(3) When, without just cause, he refuses to give a
borne by him.
receipt;
These provisions are without prejudice to venue under
(4) When two or more persons claim the same right to
the Rules of Court. (1171a)
collect;

(5) When the title of the obligation has been lost. (1176a)
SUBSECTION 1. - Application of Payments
Art. 1257. In order that the consignation of the thing due
may release the obligor, it must first be announced to the
Art. 1252. He who has various debts of the same kind in persons interested in the fulfillment of the obligation.
favor of one and the same creditor, may declare at the
time of making the payment, to which of them the same The consignation shall be ineffectual if it is not made
must be applied. Unless the parties so stipulate, or when strictly in consonance with the provisions which regulate
the application of payment is made by the party for payment. (1177)
whose benefit the term has been constituted, application
shall not be made as to debts which are not yet due. Art. 1258. Consignation shall be made by depositing the
things due at the disposal of judicial authority, before
If the debtor accepts from the creditor a receipt in which whom the tender of payment shall be proved, in a proper
an application of the payment is made, the former cannot case, and the announcement of the consignation in other
complain of the same, unless there is a cause for cases.
invalidating the contract. (1172a)
The consignation having been made, the interested
Art. 1253. If the debt produces interest, payment of the parties shall also be notified thereof. (1178)
principal shall not be deemed to have been made until
the interests have been covered. (1173) Art. 1259. The expenses of consignation, when properly
made, shall be charged against the creditor. (1178)
Art. 1254. When the payment cannot be applied in
accordance with the preceding rules, or if application can Art. 1260. Once the consignation has been duly made,
not be inferred from other circumstances, the debt which the debtor may ask the judge to order the cancellation of
is most onerous to the debtor, among those due, shall be the obligation.
deemed to have been satisfied.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has
 been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain in Art. 1270. Condonation or remission is essentially
force. (1180) gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.
Art. 1261. If, the consignation having been made, the
creditor should authorize the debtor to withdraw the One and the other kind shall be subject to the rules
same, he shall lose every preference which he may have which govern inofficious donations. Express condonation
over the thing. The co-debtors, guarantors and sureties shall, furthermore, comply with the forms of donation.
shall be released. (1181a) (1187)

Art. 1271. The delivery of a private document evidencing

SECTION 2. - Loss of the Thing Due a credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former
had against the latter.
Art. 1262. An obligation which consists in the delivery of
a determinate thing shall be extinguished if it should be If in order to nullify this waiver it should be claimed to be
lost or destroyed without the fault of the debtor, and inofficious, the debtor and his heirs may uphold it by
before he has incurred in delay. proving that the delivery of the document was made in
virtue of payment of the debt. (1188)
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not Art. 1272. Whenever the private document in which the
extinguish the obligation, and he shall be responsible for debt appears is found in the possession of the debtor, it
damages. The same rule applies when the nature of the shall be presumed that the creditor delivered it
obligation requires the assumption of risk. (1182a) voluntarily, unless the contrary is proved. (1189)

Art. 1263. In an obligation to deliver a generic thing, the Art. 1273. The renunciation of the principal debt shall
loss or destruction of anything of the same kind does not extinguish the accessory obligations; but the waiver of
extinguish the obligation. (n) the latter shall leave the former in force. (1190)

Art. 1264. The courts shall determine whether, under the Art. 1274. It is presumed that the accessory obligation of
circumstances, the partial loss of the object of the pledge has been remitted when the thing pledged, after
obligation is so important as to extinguish the obligation. its delivery to the creditor, is found in the possession of
(n) the debtor, or of a third person who owns the thing.
(1191a)
Art. 1265. Whenever the thing is lost in the possession of
the debtor, it shall be presumed that the loss was due to
his fault, unless there is proof to the contrary, and SECTION 4. - Confusion or Merger of Rights
without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood,
storm, or other natural calamity. (1183a) Art. 1275. The obligation is extinguished from the time
the characters of creditor and debtor are merged in the
Art. 1266. The debtor in obligations to do shall also be same person. (1192a)
released when the prestation becomes legally or
physically impossible without the fault of the obligor. Art. 1276. Merger which takes place in the person of the
(1184a) principal debtor or creditor benefits the guarantors.
Confusion which takes place in the person of any of the
Art. 1267. When the service has become so difficult as to latter does not extinguish the obligation. (1193)
be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or Art. 1277. Confusion does not extinguish a joint
in part. (n) obligation except as regards the share corresponding to
the creditor or debtor in whom the two characters
Art. 1268. When the debt of a thing certain and concur. (1194)
determinate proceeds from a criminal offense, the debtor
shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing SECTION 5. - Compensation
having been offered by him to the person who should
receive it, the latter refused without justification to accept
it. (1185) Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors of
Art. 1269. The obligation having been extinguished by each other. (1195)
the loss of the thing, the creditor shall have all the rights
of action which the debtor may have against third Art. 1279. In order that compensation may be proper, it
persons by reason of the loss. (1186) is necessary:

(1) That each one of the obligors be bound principally,

and that he be at the same time a principal creditor of
SECTION 3. - Condonation or Remission of the Debt
the other;
 (2) That both debts consist in a sum of money, or if the Art. 1288. Neither shall there be compensation if one of
things due are consumable, they be of the same kind, the debts consists in civil liability arising from a penal
and also of the same quality if the latter has been stated; offense. (n)

(3) That the two debts be due; Art. 1289. If a person should have against him several
debts which are susceptible of compensation, the rules
(4) That they be liquidated and demandable; on the application of payments shall apply to the order of
the compensation. (1201)
(5) That over neither of them there be any retention or
controversy, commenced by third persons and Art. 1290. When all the requisites mentioned in Article
communicated in due time to the debtor. (1196) 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the
Art. 1280. Notwithstanding the provisions of the
concurrent amount, even though the creditors and
preceding article, the guarantor may set up
debtors are not aware of the compensation. (1202a)
compensation as regards what the creditor may owe the
principal debtor. (1197)

Art. 1281. Compensation may be total or partial. When SECTION 6. - Novation

the two debts are of the same amount, there is a total
compensation. (n)
Art. 1291. Obligations may be modified by:
Art. 1282. The parties may agree upon the
(1) Changing their object or principal conditions;
compensation of debts which are not yet due. (n)
(2) Substituting the person of the debtor;
Art. 1283. If one of the parties to a suit over an obligation
has a claim for damages against the other, the former (3) Subrogating a third person in the rights of the
may set it off by proving his right to said damages and creditor. (1203)
the amount thereof. (n)
Art. 1292. In order that an obligation may be
Art. 1284. When one or both debts are rescissible or extinguished by another which substitute the same, it is
voidable, they may be compensated against each other imperative that it be so declared in unequivocal terms, or
before they are judicially rescinded or avoided. (n) that the old and the new obligations be on every point
incompatible with each other. (1204)
Art. 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of a third Art. 1293. Novation which consists in substituting a new
person, cannot set up against the assignee the debtor in the place of the original one, may be made
compensation which would pertain to him against the even without the knowledge or against the will of the
assignor, unless the assignor was notified by the debtor latter, but not without the consent of the creditor.
at the time he gave his consent, that he reserved his Payment by the new debtor gives him the rights
right to the compensation. mentioned in Articles 1236 and 1237. (1205a)

If the creditor communicated the cession to him but the Art. 1294. If the substitution is without the knowledge or
debtor did not consent thereto, the latter may set up the against the will of the debtor, the new debtor's
compensation of debts previous to the cession, but not insolvency or non-fulfillment of the obligations shall not
of subsequent ones. give rise to any liability on the part of the original debtor.
(n)
If the assignment is made without the knowledge of the
debtor, he may set up the compensation of all credits Art. 1295. The insolvency of the new debtor, who has
prior to the same and also later ones until he had been proposed by the original debtor and accepted by
knowledge of the assignment. (1198a) the creditor, shall not revive the action of the latter
against the original obligor, except when said insolvency
Art. 1286. Compensation takes place by operation of
was already existing and of public knowledge, or known
law, even though the debts may be payable at different
to the debtor, when the delegated his debt. (1206a)
places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment. Art. 1296. When the principal obligation is extinguished
(1199a) in consequence of a novation, accessory obligations
may subsist only insofar as they may benefit third
Art. 1287. Compensation shall not be proper when one
persons who did not give their consent. (1207)
of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in Art. 1297. If the new obligation is void, the original one
commodatum. shall subsist, unless the parties intended that the former
relation should be extinguished in any event. (n)
Neither can compensation be set up against a creditor
who has a claim for support due by gratuitous title, Art. 1298. The novation is void if the original obligation
without prejudice to the provisions of paragraph 2 of was void, except when annulment may be claimed only
Article 301. (1200a) by the debtor or when ratification validates acts which
are voidable. (1208a)
 Art. 1299. If the original obligation was subject to a Art. 1310. The determination shall not be obligatory if it is
suspensive or resolutory condition, the new obligation evidently inequitable. In such case, the courts shall
shall be under the same condition, unless it is otherwise decide what is equitable under the circumstances. (n)
stipulated. (n)
Art. 1311. Contracts take effect only between the parties,
Art. 1300. Subrogation of a third person in the rights of their assigns and heirs, except in case where the rights
the creditor is either legal or conventional. The former is and obligations arising from the contract are not
not presumed, except in cases expressly mentioned in transmissible by their nature, or by stipulation or by
this Code; the latter must be clearly established in order provision of law. The heir is not liable beyond the value
that it may take effect. (1209a) of the property he received from the decedent.

Art. 1301. Conventional subrogation of a third person If a contract should contain some stipulation in favor of a
requires the consent of the original parties and of the third person, he may demand its fulfillment provided he
third person. (n) communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a
Art. 1302. It is presumed that there is legal subrogation: person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
(1) When a creditor pays another creditor who is
third person. (1257a)
preferred, even without the debtor's knowledge;
Art. 1312. In contracts creating real rights, third persons
(2) When a third person, not interested in the obligation,
who come into possession of the object of the contract
pays with the express or tacit approval of the debtor;
are bound thereby, subject to the provisions of the
(3) When, even without the knowledge of the debtor, a Mortgage Law and the Land Registration Laws. (n)
person interested in the fulfillment of the obligation pays,
Art. 1313. Creditors are protected in cases of contracts
without prejudice to the effects of confusion as to the
intended to defraud them. (n)
latter's share. (1210a)
Art. 1314. Any third person who induces another to
Art. 1303. Subrogation transfers to the persons
violate his contract shall be liable for damages to the
subrogated the credit with all the rights thereto
other contracting party. (n)
appertaining, either against the debtor or against third
person, be they guarantors or possessors of mortgages, Art. 1315. Contracts are perfected by mere consent, and
subject to stipulation in a conventional subrogation. from that moment the parties are bound not only to the
(1212a) fulfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature,
Art. 1304. A creditor, to whom partial payment has been
may be in keeping with good faith, usage and law.
made, may exercise his right for the remainder, and he
(1258)
shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of Art. 1316. Real contracts, such as deposit, pledge and
the same credit. (1213) Commodatum, are not perfected until the delivery of the
object of the obligation. (n)

Title II. - CONTRACTS Art. 1317. No one may contract in the name of another
Art. 1305. A contract is a meeting of minds between two without being authorized by the latter, or unless he has
persons whereby one binds himself, with respect to the by law a right to represent him.
other, to give something or to render some service.
(1254a) A contract entered into in the name of another by one
who has no authority or legal representation, or who has
Art. 1306. The contracting parties may establish such acted beyond his powers, shall be unenforceable, unless
stipulations, clauses, terms and conditions as they may it is ratified, expressly or impliedly, by the person on
deem convenient, provided they are not contrary to law, whose behalf it has been executed, before it is revoked
morals, good customs, public order, or public policy. by the other contracting party. (1259a)
(1255a)

Art. 1307. Innominate contracts shall be regulated by the

stipulations of the parties, by the provisions of Titles I
and II of this Book, by the rules governing the most
analogous nominate contracts, and by the customs of
the place. (n)

Art. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will
of one of them. (1256a)

Art. 1309. The determination of the performance may be

left to a third person, whose decision shall not be binding
until it has been made known to both contracting parties.
(n)