The Civil Code of the Philippines discusses several ways on how to extinguish a previously contracted debt, namely: NOVATION, COMPENSATION, MERGER, REMISSION, and PAYMENT. Although there are still other ways, these five methods are the most commonly known.

In brief discussion:

  1. Novation occurs when the contract between the borrower and the lender is modified either by changing the conditions thereof, or by substituting the borrower or the lender with another person.
  2. Compensation happens when the parties of a contract of loan become borrower and lender of each other in their own right. In this case, another contract of loan is executed and in the second contract, the roles of the borrower and the lender are reversed.
  3. Merger takes place when the characteristics of both a lender and a borrower are combined into the same party.
  4. Remission is also known as condonation. This means that the lender excused the borrower from complying with the obligation; hence, in this method of extinguishment, a perfected loan is disregarded and ignored by the lender, as if nothing was contracted. To be binding, such condonation by the lender must be accepted by the borrower.
  5. Payment means that the amount of loan, together with interest, if any, is returned by the borrower to the lender.

With knowledge of the ways on how to extinguish a debt, a borrower may protect himself from possible exploitation from an abusive lender. For more information about these matters, it is best to discuss fully the details of your situation with a lawyer.