Extinguishment of Obligations: 6 Modes Under Art. 1231

Short answer: Under Article 1231 of the Civil Code, an obligation ends in only six ways: payment or performance, loss of the thing due, condonation (forgiveness), confusion or merger, compensation (setoff), and novation. Annulment, rescission, a resolutory condition and prescription also end obligations under other rules. Each mode has strict requisites, so silence or the passing of time alone does not erase a debt.

This page is the map. It explains how each mode works, what you need to prove it, and where to go if the other side disagrees. Each mode also has its own detailed guide on CivilLaw.ph, linked below.

What are the six modes of extinguishing an obligation?

Article 1231 lists the six modes and adds that “other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code.” The table below gives a quick view of each one and the proof that usually decides a dispute about it.

Mode	What it requires	Civil Code articles	Proof to keep
Payment or performance	Complete delivery of the thing or service, made to the creditor or someone authorized to receive it.	Arts. 1232–1261	Official receipts, bank transfer records, signed acknowledgment of delivery.
Loss of the thing due	A determinate thing is lost without the debtor’s fault and before the debtor is in delay.	Arts. 1262–1269	Incident reports, photos, proof the loss was not the debtor’s fault.
Condonation or remission	Gratuitous forgiveness by the creditor, accepted by the debtor; express condonation follows the forms of donation.	Arts. 1270–1274	Written waiver, or the original promissory note returned to the debtor.
Confusion or merger	The same person becomes both creditor and debtor of the same obligation.	Arts. 1275–1277	Deed of assignment, estate documents, or records showing how the roles merged.
Compensation (setoff)	Two people owe each other; for legal compensation, both debts are due, liquidated and demandable.	Arts. 1278–1290	Loan documents, statements and judgments fixing each debt’s amount and due date.
Novation	A new obligation replaces the old one, declared in unequivocal terms or fully incompatible with it.	Arts. 1291–1304	The new contract, restructuring agreement or creditor’s written consent.
Prescription and other causes	The creditor failed to sue within the legal period, or the contract was annulled or rescinded.	Art. 1231 (last paragraph); Arts. 1144–1155	Contract date, due date, and copies of every written demand or acknowledgment.

The mode you rely on decides what you must prove. A debtor who says “I already paid” needs receipts. A debtor who says “you owe me too” needs proof that both debts are fixed and due. Picking the wrong theory, or raising it too late, can cost you the defense.

When does payment extinguish an obligation?

Payment is the normal way an obligation ends. Under Article 1232, payment means not only the delivery of money but also performance “in any other manner.” Article 1233 sets the key rule: a debt is not paid “unless the thing or service in which the obligation consists has been completely delivered or rendered.” A creditor also cannot be forced to accept partial payments unless the parties agreed to them (Art. 1248).

Pay the right person. Payment must go to the creditor, a successor in interest, or someone authorized to receive it (Art. 1240). Paying a stranger generally releases you only if it benefited the creditor (Art. 1241). See how payment extinguishes an obligation.
Checks count when cashed. Delivering a check or promissory note produces the effect of payment only once it is cashed, or if it was impaired through the creditor’s fault (Art. 1249).
Accepted with no protest. If the creditor accepts incomplete or irregular performance knowingly and without objection, the obligation is deemed fully complied with (Art. 1235).
Creditor refuses to accept. If the creditor refuses a valid tender without just cause, the debtor is released by consignation, which means depositing the thing or sum with the court after the required notices (Arts. 1256–1258). Our guide on tender of payment and consignation walks through the steps.
Property instead of cash. Giving property to settle a money debt is dation in payment, governed by the law on sales (Art. 1245). A creditor cannot be forced to accept a different thing, even one of greater value (Art. 1244). See dation in payment.

Does losing or destroying the thing end the obligation?

Only in narrow cases. An obligation to deliver a determinate thing, such as a specific car or a particular lot, is extinguished if the thing is lost or destroyed without the debtor’s fault and before the debtor is in delay (Art. 1262). It is not extinguished if the law or the contract makes the debtor liable even for fortuitous events.

An obligation to deliver a generic thing, such as 100 sacks of rice, is never extinguished by loss, because things of the same kind can still be delivered (Art. 1263). If the thing is lost while in the debtor’s possession, the law presumes the debtor was at fault unless proven otherwise; this presumption does not apply to an earthquake, flood, storm or other natural calamity (Art. 1265). For obligations to do, the debtor is released when performance becomes legally or physically impossible without the debtor’s fault (Art. 1266). For how courts test a supposed fortuitous event, read fortuitous events and force majeure in Philippine contracts.

How does a creditor forgive a debt (condonation)?

Condonation or remission “is essentially gratuitous, and requires the acceptance by the obligor,” and may be express or implied (Art. 1270). Because it is a kind of donation, express condonation must follow the forms of donation, and both kinds are subject to the rules on inofficious donations. If the creditor voluntarily hands the debtor the private document evidencing the debt, such as the original promissory note, the creditor is understood to have renounced the claim (Art. 1271). When that document is found with the debtor, the law presumes the creditor gave it voluntarily unless shown otherwise (Art. 1272).

Forgiving the principal debt also releases accessory obligations such as a guaranty, but waiving only the guaranty leaves the principal debt in force (Art. 1273). Details are in condonation or remission of debt.

What is confusion or merger of rights?

An obligation ends “from the time the characters of creditor and debtor are merged in the same person” (Art. 1275). A typical example: a debtor buys or is assigned the very credit he owes. Merger in the principal debtor or creditor benefits the guarantors, but merger in the person of a guarantor does not extinguish the main obligation (Art. 1276). In a joint obligation, merger extinguishes only the share of the person in whom both roles meet (Art. 1277).

When do mutual debts cancel each other (compensation)?

Compensation takes place when two persons, in their own right, are creditors and debtors of each other (Art. 1278). Legal compensation needs all five requisites of Article 1279: each party is bound principally and is a principal creditor of the other; both debts are in money or in consumables of the same kind and quality; both are due; both are liquidated and demandable; and neither is subject to a retention or controversy started by third persons and communicated in time to the debtor. When all are present, compensation “takes effect by operation of law,” extinguishing both debts to the concurrent amount even if the parties are unaware of it (Art. 1290).

There is no compensation when one debt arises from a deposit or from the duties of a bailee in commodatum, against a claim for support due by gratuitous title (Art. 1287), or when one debt is civil liability from a crime (Art. 1288). Parties may still agree to set off debts that are not yet due (Art. 1282).

The Supreme Court applies these requisites strictly. In Philippine Trust Company v. Roxas, G.R. No. 171897 (October 14, 2015), the Court refused a bank’s legal compensation claim because the borrowers’ loan was still disputed in a separate appeal, so it was not yet liquidated, and because the bank raised the defense only when opposing execution, not in its answer. More on this in compensation or setoff.

When does a new agreement replace the old one (novation)?

An obligation may be modified by changing its object or principal conditions, substituting the debtor, or subrogating a third person to the creditor’s rights (Art. 1291). For the old obligation to be extinguished, the new one must say so “in unequivocal terms,” or the old and new obligations must be “on every point incompatible with each other” (Art. 1292). A restructuring that only extends the due date or changes the interest rate often leaves the original debt alive. A new debtor may be substituted without the original debtor’s knowledge, but never without the creditor’s consent (Art. 1293). See novation of a contract or debt.

Can an old debt simply expire through prescription?

Prescription bars the action to collect. Under Article 1144, actions on a written contract must be brought within ten years from accrual; under Article 1145, actions on an oral contract or quasi-contract within six years. Article 1155 is the trap: prescription is interrupted when a case is filed in court, when the creditor makes a written extrajudicial demand, or when the debtor gives any written acknowledgment of the debt. A text or letter admitting the debt can therefore restart the clock. For accrual rules and other periods, see prescription of contract actions.

Your options and what to do next

Whether you are the debtor saying the obligation has ended or the creditor saying it has not, the steps below move from cheapest to most formal.

Identify the mode and gather proof (first action, today). Decide which mode applies and collect the documents in the table above: receipts, bank records, the promissory note, the restructuring agreement, statements showing both debts. Under Article 1176, a creditor’s receipt for principal without any reservation about interest raises a presumption that the interest was paid, so keep every receipt.
Put your position in writing. Send a letter explaining why the obligation is extinguished (debtor) or demanding payment (creditor), with copies of your proof. A creditor’s written demand interrupts prescription (Art. 1155). Debtors should be careful: a written acknowledgment of the debt also interrupts it. Our guide to demand letters explains the format.
If the creditor refuses your payment, tender and consign. Make a formal tender, and if it is refused without just cause, deposit the amount with the court after notifying the interested parties (Arts. 1256–1258). Bring the contract, proof of tender and the amount due.
Go to the barangay if the law requires it. Disputes between individuals actually residing in the same city or municipality generally go first to the Lupon of the barangay for amicable settlement, subject to the exceptions in Section 408 of the Local Government Code (RA 7160). The complaint is filed with the lupon chairman, oral or written (Sec. 410). Bring IDs, the contract and your proof of payment or setoff. If no settlement is reached, ask for the certification to file action.
File or defend the case in court. A creditor with a money claim may use the small claims procedure if the amount is within the current limit; see how to file a small claims case. A debtor who is sued must raise payment, compensation, novation or prescription in the answer. Philippine Trust Company v. Roxas shows that a defense raised too late can be lost.
Get legal help. If the amount is large, property is involved, or the other side has a lawyer, consult a private lawyer, or check whether you qualify for free assistance from the Public Attorney’s Office (PAO).

Key takeaways

Article 1231 lists six modes: payment, loss of the thing due, condonation, confusion or merger, compensation and novation; prescription, annulment, rescission and a resolutory condition work under other rules.
Payment must be complete and made to the right person; a refused tender is cured by consignation in court.
Loss extinguishes only obligations over a determinate thing, lost without the debtor’s fault and before delay.
Legal compensation is automatic but strict: both debts must be due, liquidated and demandable, and the defense must be raised on time.
Novation is not presumed; the new agreement must clearly replace the old one or be fully incompatible with it.
Any written demand by the creditor or written acknowledgment by the debtor interrupts prescription.

Frequently asked questions

Does a debt disappear if the creditor stops asking for payment?

No. Silence does not extinguish the obligation. The creditor’s action may eventually prescribe (ten years for a written contract, six years for an oral one under Articles 1144 and 1145), but any written demand by the creditor or written acknowledgment by the debtor interrupts that period (Art. 1155).

Can I refuse to pay because the creditor owes me money too?

Only if legal compensation applies: both of you must be principal debtors and creditors of each other, and both debts must be in money, due, liquidated and demandable (Art. 1279). If the other debt is still disputed, it is not liquidated and there is no automatic setoff.

Is a verbal “forget the debt” from the creditor enough?

It is risky. Condonation needs the debtor’s acceptance, and express condonation must follow the forms of donation (Art. 1270). Ask the creditor to sign a written waiver, or to return the original promissory note, which implies renunciation of the claim (Art. 1271).

Does restructuring a loan cancel the original loan?

Not automatically. Novation extinguishes the old obligation only if the new agreement says so in unequivocal terms or the two are incompatible on every point (Art. 1292). Read the restructuring agreement for an express statement that the old loan is cancelled.

Related guides

For the different types of obligations these modes apply to, read kinds of obligations under the Civil Code, or browse the full text of Civil Code Book IV on obligations and contracts.

Sources

Civil Code of the Philippines (Republic Act No. 386), Arts. 1144–1155, 1176 and 1231–1304, Lawphil
Local Government Code of 1991 (Republic Act No. 7160), Secs. 408–410, Lawphil
Philippine Trust Company v. Roxas, G.R. No. 171897, October 14, 2015, Lawphil
Public Attorney’s Office, official website

Sources rechecked as of: October 9, 2026

This page is general legal information about Philippine law, not legal advice. For advice on your situation, consult a lawyer or the Public Attorney’s Office.

Extinguishment of Obligations: How a Debt Legally Ends