ARTICLE 1231

OBLIGATIONS
(1)
(2)
(3)
(4)
(5)
(6)

ARE EXTINGUISHED:

BY PAYMENT OR PERFORMANCE;
BY 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, FULFILLMENT
RESOLUTORY CONDITION, AND PRESCRIPTION, ARE GOVERNED ELSEWHERE IN THIS CODE. (1156A)

OF A

CAUSES OF EXTINGUISHMENT OF OBLIGATIONS

1. Death of the party if obligation is personal

2. Mutual withdrawal where after the borrowers loan is approved instead of insisting for the release,
he asked that the mortgage given by him as security be cancelled by the debtor (DBP). Mutual
disagreement (which is the case above) can extinguish a contract. (Mutual agreement - opposite)
3. Arrival of resolutory period
4. Compromise
5. Impossibility of fulfillment
6. Happening of a fortuitous event

ARTICLE 1232
PAYMENT

MEANS NOT ONLY THE DELIVERY OF MONEY BUT ALSO THE PERFORMANCE, IN ANY OTHER MANNER, OF AN

OBLIGATION. (N)

MEANING OF PAYMENT

1. Ordinary parlance only to delivery of money

2. Payment not only consists of money but also giving of a thing or doing/not doing of an act.
If debtor pays damages/penalty to fulfill an obligation, there is also payment
PAYMENT = PERFORMANCE

ARTICLE 1233
A

DEBT SHALL NOT HAVE BEEN 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.

(1157)

WHEN DEBT IS CONSIDERED PAID

Debt an obligation to deliver money/a thing/to do or not to do an act

1. Integrity of prestation a debt to deliver a thing (including money) or to do service. It has to be
delivered or rendered completely for the debt to be paid. Partial/Irregular performance will not
extinguish obligation
2. Identitiy of the prestation the very prestation due must be delivered/performed

ARTICLE 1234
IF

THE OBLIGATION HAS BEEN SUBSTANTIALLY PERFORMED IN GOOD FAITH, THE OBLIGOR MAY RECOVER AS THOUGH THERE HAD

BEEN A STRICT AND COMPLETE FULFILLMENT, LESS DAMAGES SUFFERED BY THE OBLIGEE. (N)

RECOVERY ALLOWED IN CASE OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH

NOTE TO SELF

Remember to reread examples in book

This article if the first exception to Article 1233 because:

Adopted from American Law

In case of substantial performance, obligee is benefited
Obligor should be allowed to recover (as if there have been a complete fulfillment less damages
suffered by obligee)
Compensation for breach committed by obligor

REQUISITES FOR THE APPLICATION OF ARTICLE

1234

1. There must be substantial performance

2. The obligor must be in good faith

ARTICLE 1235
WHEN

THE OBLIGEE ACCEPTS THE PERFORMANCE, KNOWING ITS INCOMPLETENESS OR IRREGULARITY, AND WITHOUT

EXPRESSING ANY PROTEST OR OBJECTION, THE OBLIGATION IS DEEMED FULLY COMPLIED WITH. (N)

RECOVERY ALLOWED WHEN INCOMPLETE OR IRREGULAR PERFORMANCE IS WAIVED

This is another exception to article 1233, and founded on the principle of estroppel.

If payment irregular/complete, creditor may reject

If creditor accepts, the right must be waived, then the obligation is estinguished

REQUISITES FOR THE APPLICATION OF ARTICLE

1235

1. The obligee knows that the performance is incomplete/irregular

2. He accepts performance without expressing protest/objection

ARTICLE 1236
THE

CREDITOR IS NOT TO BOUND TO ACCEPT PAYMENT OR PERFORMANCE BY A THIRD PERSON WHO HAS NO INTEREST IN THE

FULFILLMENT 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 BENEFICIAL
TO THE DEBTOR.

(1158A)

PERSONS FROM WHOM THE CREDITOR MUST ACCEPT PAYMENT

1. Debtor
2. Any person who has an interest in the obligation (e.g. guarantor)
3. Third person who has no interest in obligation when there is stipulation he can make payment
CREDITOR MAY REFUSE PAYMENT BY A THIRD PERSON

Creditor should have a right to insist on the liability on the debtor unlike before; the creditor cannot
refuse payment made by the third person.
Creditor is also not compelled to accept payment by a third person whom he dislikes. The creditor
may not desire to have any dealings with the third person (May it be for personal reasons).

The creditor is only making sure, thats why he may not accept payment from a third person.
EFFECT OF PAYMENT BY THIRD PERSON

*Payment/performance may be made by any person not incapacitated, even without the knowledge or
against will of debtor, and although he has absolutely no interest in obligation.

NOTE TO SELF

Remember to reread examples in book

1. If made without the knowledge or against the will of the debtor payer can recover from
the debtor only insofar the payment has been beneficial to the latter
2. If made with the knowledge of the debtor the payer has rights of reimbursement and
subrogation (to recover what he has paid not necessarily the amount of the debt), and to acquire
all rights of debtor.

ARTICLE 1237
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.

(1159A)
RIGHT OF THIRD PERSON TO SUBROGATION

Whoever pays in behalf of debtor is entitles to subrogation, if payment is with consent of latter.
If payment is without knowledge or against will of debtor then third person cannot compel creditor
to subrogate him in the latters accessory rights of mortgage, guaranty, or penalty.
Subrogation can only take place with debtors consent.
Third person who w/o necessity paid under such condition is protected by his right to
reimbursement

SUBROGATION AND REIMBURSEMENT DISTINGUISHED

Subrogation
Person who pays for debtor is put into shoes
of creditor
Payor acquires not only right to reimburse
what he has paid but also all other rights
creditor could have exercised (credit against
debtor or against third persons guarantors
or possesors of mortgages)
There is no real extinction of obligation, only
change of creditor

Reimbursement
Third person entitled by reason of payment
has merely the bare right to be refunded
(only to extent of article 1236), this is
without right to the guarantees and
securities of original obligation

ARTICLE 1238
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 DEBTORS CONSENT. BUT THE PAYMENT IS IN ANY CASE VALID AS TO THE CREDITOR WHO HAS
ACCEPTED IT. (N)

PAYMENT BY A THIRD PERSON WHO DOESNT INTEND TO BE REIMBURSED

This article embodies the idea that no one should be compelled to accept the generosity of another. If
paying the third person does not intend to reimburse then the payment is made into a donation which
requires the debtors consent to be valid.
However if creditor accepts payment, it will be also considered as a donation even without consent of the
debtor.
*Example: D owes C 1php, S paid Ds obligation without intention of being reimbursed. D had previously
accepted Ss generosity. D is not liable to S and Ds obligation is extinguished. If D did not give consent to
the donation, S may reimburse, even id S didnt intend to be reimbursed. The obligation of D to C is
extinguished because the payment is valid to C who has accepted it. D cannot legally refuse to pay S and
insist to pay C.

NOTE TO SELF

Remember to reread examples in book

ARTICLE 1239
IN

OBLIGATIONS TO GIVE, PAYMENT MADE BY ONE WHO DOES NOT HAVE FREE DISPOSAL OF THE THING DUE AND CAPACITY TO

ALIENATE IT SHALL NOT BE VALID, WITHOUT PREJUDICE TO THE PROVISIONS OF THE ARTICLE

1247

UNDER THE

TITLE

ON

NATURAL OBLIGATIONS. (1160A)

MEANING OF

FREE DISPOSAL OF THING DUE AND CAPACITY TO ALIENATE

1. Free disposal of thing due thing to be delivered must not be subject to any claim, lien or
encumbrance (mortgage, pledge) of a third person
2. Capacity to alienate person is not incapacitated to enter into contracts and to make the
disposal of a thing due

FREE DISPOSAL OF THING DUE AND CAPACITY TO ALIENATE REQUIRED

In obligations to give, payment by one who doesnt have the free disposition of a free thing due and
capacity to alienate is not valid (paid thing can be recovered)
Exception: creditor cannot be compelled to accept payment where the person has no capacity to
make it

ARTICLE 1240
PAYMENT SHALL BE MADE TO THE PERSON IN WHOSE FAVOR THE OBLIGATION
INTEREST, OR ANY PERSON AUTHORIZED TO RECEIVE IT. (1162A)

HAS BEEN CONSTITUTED, OR HIS SUCCESSOR IN

PERSON TO WHOM PAYMENT SHALL BE MADE

1. Creditor or oblige
2. His successor in interest
3. Any person authorized to receive it
Creditor referred to must be the creditor at time of payment not at time of c0nstitution of obligation

ARTICLE 1241
PAYMENT

TO A PERSON WHO IS INCAPACITATED TO ADMINISTER HIS PROPERTY SHALL BE VALID AS IF HE HAS KEPT THE THING

DELIVERED, OR INSOFAR AS THE PAYMENT HAS BEEN BENEFICIAL TO HIM.

PAYMENT MADE TO A THIRD PERSON SHALL ALSO BE VALID INSOFAR AS IT HAS REDOUNDED TO THE BENEFIT OF THE CREDITOR.
SUCH BENEFIT TO THE CREDITOR NEED NOT TO BE PROVED IN THE FOLLOWING CASES:

1.
2.
3.

IF AFTER THE PAYMENT, THE THIRD PERSON ACQUIRES THE CREDITORS RIGHTS;
IF THE CREDITORS RATIFIES THE PAYMENT TO THE THIRD PERSON;
IF BY THE CREDITORS CONDUCT, THE DEBTOR HAS BEEN LED TO BELIEVE THAT THE THIRD PERSON HAD AUTHORITY TO
RECEIVE THE PAYMENT.

(1163A)

EFFECT OF PAYMENT TO AN INCAPACITATED PERSON

Payment to a person unable to manage his property is not valid unless such incapacitated person
kept the thing paid or delivered, or it was benefited by payment.
In absence of benefit, debtor may be made to pay again by the creditors guardian/incapacitated
person himself (when capacity is recovered)
Proof of benefit is obligatory upon debtor who paid

EFFECT OF PAYMENT TO THIRD PERSON

Payment to third person or wrong party is not valid unless it was redounded to benefit of creditor

NOTE TO SELF

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The payment made by debtor to third person benefited by creditor is no presumed and must be
established by person in proving this fact
In absence of proof, payment thereof in error and in good faith will not deprive creditor to demand
payment

WHEN BENEFIT TO CREDITOR MAY NOT BE PROVED BY DEBTOR

1. Subrogation of payer in creditors rights

2. Ratification by creditor
3. Estroppel on part of creditor admission or representation is rendered conclusive upon person
making it and cannot be denied as against person relying thereon.

ARTICLE 1242
PAYMENT

MADE IN GOOD FAITH TO ANY PERSON IN POSSESSION OF THE CREDIT SHALL RELEASE THE DEBTOR.

(1164)

PAYMENT TO THIRD PERSON IN POSSESSION OF CREDIT

This refers to the possession of credit itself

Mere possession of instrument(unless transferable by delivery) does not entitle holder to payment
Payment does not release the debtor
Payor must act in good faith

ARTICLE 1243
PAYMENT

MADE TO THE CREDITOR BY THE DEBTOR AFTER THE LATTER HAS BEEN JUDICIALLY ORDERED TO RETAIN THE DEBT

SHALL NOT BE VALID

(1165)

PAYMENT TO THE CREDITOR NOT VALID

In action against debtor that is the creditor of another(during pendency of case), the debtorstranger may be ordered by court to retain the debt until right of plaintiff, the creditor in main
litigation is resolved
Payment made by debtor-stranger shall be invalid id plaintiff wins case and cannot collect from
debtor to whom payment is made (considered to have made in bad faith).

ARTICLE 1244
THE

DEBTOR OF A THING CANNOT COMPEL THE CREDITOR TO RECEIVE A DIFFERENT ONE ALTHOUGH THE LATTER MAY BE OF THE

SAME VALUE AS, OR MORE VALUABLE THAN THAT WHICH IS DUE.

IN

OBLIGATIONS TO DO OR NOT TO DO, AN ACT OR FORBEARANCE CANNOT BE SUBSTITUTED BY ANOTHER ACT OR

FORBEARANCE AGAINST OBLIGEES WILL.

(1166A)

VERY PRESTATION DUE MUST BE COMPLIED WITH

First paragraph refers to a real obligation to deliver specific thing. A thing different from what is
due cannot be demanded against will of debtor or creditor.
Second refers to personal (negative and positive) obligations. Act to be performed or prohibited
cant substituted against obligees will

WHEN PRESTATION CAN BE SUBSTITUTED

Substitution can happen if oblige consents

Facultative obligations debtor is given right to render another prestation in substitution
This article will not apply in case of waiver by creditor or substitution is allowed with consent of
creditor

ARTICLE 1245

NOTE TO SELF

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DATION

IN PAYMENT WHEREBY PROPERTY IS ALIENATED TO THE CREDITOR IN SATISFACTION OF A DEBT IN MONEY, SHALL BE

GOVERNED BY THE LAW OF SALES. (N)

SPECIAL FORMS OF PAYMENT

1. Dation in payment (adjudication, dacion en pago) is conveyance of ownership of a thing as an

accepted equivalent of performance. It is not an ordinary way of extinguishing obligation. An
existing debt in money is satisfied not by payment of money but alienation of property.
2. Application of payments (Article 1253) strictly speaking, this is not a special form of payment
3. Payment by cession (Article 1255)
4. Tender of payment and consignation (Articles 1256 to 1261)
*conveyance in effect, a novation of the contract
GOVERNING LAW

Law of sales governs because dation in payment may be considered specie of sale: amount of the money
due becomes price of thing alienated

ARTICLE 1246
WHEN

THE OBLIGATION CONSISTS IN THE DELIVERY OF AN INDETERMINATE OR GENERIC THING, WHOSE QUALITY AND

CIRCUMSTANCES HAVE NOT BEEN STATED, THE CREDITOR CANNOT DEMAND A THING OF SUPERIOR QUALITY.
DEBTOR DELIVER A THING OF INFERIOR QUALITY.
TAKEN INTO CONSIDERATION.

THE

NEITHER

CAN THE

PURPOSE OF THE OBLIGATION AND OTHER CIRCUMSTANCES SHALL BE

(1167A)

RULE OF MEDIUM QUALITY

If to deliver a specific thing, thing itself should be delivered.

If its to deliver a generic thing, purpose of obligation and other circumstances will be taken into
consideration to determine quality of thing to be delivered.
If there has been disagreement by the parties regarding precise declaration in obligation or finding
one thing exactly like the other, law steps in.
Benefit of article may be waived by creditor if he accepted thing of inferior quality
Benefit of article may be waived by debtor if he delivered thing of superior quality

ARTICLE 1247
UNLESS

IT IS OTHERWISE STIPULATED, THE EXTRAJUDICIAL EXPENSES REQUIRED BY THE PAYMENT SHALL BE FOR THE ACCOUNT

OF THE DEBTOR.

WITH

REGARD TO JUDICIAL COSTS, THE

RULES

OF

COURT

SHALL GOVERN.

(1168A)

DEBTOR PAYS FOR EXTRAJUDICIAL EXPENSES

Extrajudicial expenses are for account of debtor because obligation is extinguished when payment
is made unless otherwise stipulated

LOSING PARTY GENERALLY PAYS JUDICIAL COSTS

Judicial costs statutory amounts allowed to a party to an action for his expenses incurred in the
action
Costs will be paid by the losing party however the court may (for special reasons) adjudge that the
cost may be paid by either party or the payment be equally divided amongst the parties.
No costs against government, unless provided by law

ARTICLE 1248

NOTE TO SELF

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UNLESS

THERE IS AN EXPRESS STIPULATION TO THAT EFFECT, THE CREDITOR CANNOT BE COMPELLED PARTIALLY TO RECEIVE THE

PRESTATIONS WHICH THE OBLIGATION CONSISTS.

HOWEVER,

NEITHER

MAY THE DEBTOR BE REQUIRED TO MAKE PARTIAL PAYMENTS.

WHEN THE DEBT IS IN PART LIQUIDATED AND IN PART UNLIQUIDATED, THE CREDITOR MAY DEMAND AND THE DEBTOR

MAY EFFECT THE PAYMENT OF THE FORMER WITHOUT WAITING FOR LIQUIDATION OF THE LATTER.

(1169A)

PERFORMANCE OF OBLIGATION SHOULD BE COMPLETE

This article only covers once creditor one debtor basis

Obligation will be extinguished if there is complete performance of prestation
The creditor may accept but cannot be compelled to receive partial performance
Debtor is required to comply with whole obligation but cannot be required to make partial
payments if he doesnt want to

WHEN PARTIAL PERFORMANCE IS ALLOWED

1. When there is an express stipulation to that effect

2. When debt is part liquidated and unliquidated
3. When prestations in which the obligation consists are subject to different terms which affect some
of them
If obligation has several distinct prestation, prestations need not to be done simultaneously but
successive execution of the prestations must be complete.

ARTICLE 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 THE CURRENCY WHICH IS THE LEGAL TENDER IN THE

PHILIPPINES.

THE DELIVERY OF PROMISSORY NOTES PAYABLE TO ORDER, OR BILLS OF EXCHANGE OR OTHER MERCANTILE DOCUMENTS SHALL
PRODUCE THE EFFECT OF PAYMENT ONLY WHEN THEY HAVE BEEN CASHED, OR WHEN THROUGH THE FAULT OF THE CREDITOR
THEY HAVE BEEN IMPAIRED,
IN THE MEANTIME, THE ACTION DERIVED FROM THE ORIGINAL OBLIGATION SHALL BE HELD IN ABEYANCE.

(1170)

MEANING OF LEGAL TENDER

Legal tender is the currency which a debtor can legally compel a creditor to accept in payment of a debt
in money when tendered by the debtor in the right amount.
LEGAL TENDER IN THE

PHILIPPINES

Debts in money shall be paid in the currency stipulated, if currency not available then pay in the
currency which is the legal tender in the Philippines.
All coins and notes issued by Bangko Sentral ng Pilipinas is legal tender for all debts public or
private
Coins are legal tender amounts not exceeding 50php for denominations 0.25php and above, and in
those amounts not exceeding 20php for denominations 0.10php or less.
All coins and bills above 1php are valid for tenders of any amount

PAYMENT BY MEANS OF INSTRUMENTS OF CREDITS

1. Right of creditor to refuse or accept if the payment is not a form of legal tender (checks, bills
of exchange, etc.), the creditor cannot be compelled to accept them, but he may accept without
acceptance producing the effect of payment.
2. Effect on obligation payment by mercantile documents cannot extinguish obligation
a. Until they have been cashed
b. Unless they have been impaired through fault of creditor

NOTE TO SELF

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ARTICLE 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 OBLIGATION SHALL BE THE BASIS OF PAYMENT, UNLESS THERE IS AN
AGREEMENT TO THE CONTRARY. (N)

MEANING OF INFLATION AND DEFLATION

1. Inflation sharp sudden increase of money and/or credit without increase in business
transactions. Inflation causes drop of money, rise of general price level.
2. Deflation reduction in volume and circulation of money or credit resulting in decline of general
price level
BASIS OF PAYMENT IN CASE OF EXTRAORDINARY INFLATION OR DEFLATION

Purchasing value at time of establishment of obligation shall be the basis of payment

If there has been an extraordinary increase/decrease in price that wasnt foreseen, this is subject to
agreement of the parties to the contrary
extraordinary inflation or deflation of the currency stipulated
This article envisages contractual obligations where a currency selected by the parties is the
medium of payment

ARTICLE 1251
PAYMENT
THERE

SHALL BE MADE IN THE PLACE DESIGNATED IN THE OBLIGATION.

BEING NO EXPRESS STIPULATION AND IF THE UNDERTAKING IS TO DELIVER A DETERMINATE THING, THE PAYMENT SHALL

BE MADE WHEREVER THE THING MIGHT BE AT THE MOMENT THE OBLIGATION WAS CONSTITUTED.

IN

ANY OTHER CASE THE PLACE OF PAYMENT SHALL BE THE DOMICILE OF THE DEBTOR.

IF

THE DEBTOR CHANGES HIS DOMICILE IN BAD FAITH OR AFTER HE HAS INCURRED IN DELAY, THE ADDITIONAL EXPENSES SHALL

BE BORNE BY HIM.

THERE

PROVISIONS ARE WITHOUT PREJUDICE TO VENUE UNDER THE

RULES

OF

COURT. (1171A)

PLACE WHERE OBLIGATION SHALL BE PAID

1. If there is stipulation, the payment will be made in the place designated

2. If the thing to be delivered is specific, payment shall be made at the place where the thing was
upon completion of contract
3. If no stipulation and thing is generic, place of payment shall be domicile to the debtor, creditor
bears expenses to going to creditors place to accept payment
Venue place where a court suit or action must be filed or instituted
Domicile/Legal Residence is a place of a persons habitual residence, place where he has intention
of returning in case of absence (e.g. home). Requires bodily presence in that place and intention to
make it ones domicile
Residence is an element of domicile. Requires bodily presence as an inhabitant in a given place

ARTICLE 1252

NOTE TO SELF

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HE

WHO HAS VARIOUS DEBTS OF THE SAME KIND IN FAVOR OF ONE AND THE SAME CREDITOR, MAY DECLARE AT THE TIME OF

MAKING THE PAYMENT, TO WHICH OF THEM THE TIME MUST BE APPLIED.

UNLESS

THE PARTIES SO STIPULATE, OR WHEN THE

APPLICATION OF PAYMENT IS MADE BY THE PARTY FOR WHOSE BENEFIT THE TERM HAS BEEN CONSTITUTED, APPLICATION SHALL
NOT BE MADE AS TO DEBTS WHICH ARE NOT DUE.

IF

THE DEBTOR ACCEPTS FROM THE CREDITOR A RECEIPT IN WHICH AN APPLICATION OF THE PAYMENT IS MADE, THE FORMER

CANNOT COMPLAIN OF THE SAME, UNLESS THERE IS A CAUSE FOR INVADING THE CONTRACT.

(1172A)

MEANING OF APPLICATION OF PAYMENTS

Application of payments designation of debt to which should be applied the payment made by a
debtor who has various debts of the same kind in favor of the one and the same creditor
REQUISITES OF APPLICATION OF PAYMENTS

1.
2.
3.
4.
5.

There must be one debtor and one creditor

There must be two or more debts
Debts must be of the same kind
Debts to which payment made but the debtor has been applied and must be due
Payment must not be enough to cover all debts

APPLICATIONS AS TO DEBTS NOT YET DUE

Cannot be made unless:

1. There is stipulation that the debtor may so apply
2. Its made by debtor or creditor for whose benefit the period has been constituted
RULES ON APPLICATION OF PAYMENTS

1. Debtor has made first choice; he must indicate at time of making payment which debt he is paying.
He cannot reapply that particular payment to another debt. The initial decision of the debtor is
irrevocable unless creditor consents to the change.
2. If debtor does not apply payment, creditor may decide receipt which debt is being paid
3. If creditor did not make application/application not valid, debt which is most onerous to the debtor
shall be satisfied
4. If debts are due of the same nature and burden, payment shall be applied to all of them
proportionately

ARTICLE 1253
IF THE DEBT PRODUCES INTEREST, PAYMENT OF THE PRINCIPAL SHALL NOT BE DEEMED TO HAVE BEEN COVERED.

(1173)

INTEREST EARNED PAID AHEAD OF PRINCIPAL

Debtor cant choose to credit payment to principal before interest is paid

Whatever balance is left paid to the interest goes to the principal
Creditor can refuse application of debtor contrary to provisions of this article
Rule is subject to any agreement between the parties/waiver from creditor

ARTICLE 1254
WHEN THE PAYMENT CANNOT BE APPLIED IN ACCORDANCE WITH THE PRECEDING RULES, OR IF APPLICATION CANNOT BE
INFERRED FROM OTHER CIRCUMSTANCES, THE DEBT WHICH IS MOST ONEROUS TO THE DEBTOR, AMONG THOSE DUE, SHALL BE
DEEMED TO HAVE BEEN SATISFIED.
IF THE DEBTS DUE ARE OF THE SAME NATURE AND BURDEN THE PAYMENT SHALL BE APPLIED TO ALL OF THEM
PROPORTIONATELY.

(1174A)

NOTE TO SELF

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LEGAL APPLICATION OF PAYMENTS

If case no application of payment has been made to debtor/creditor, payment shall be applied to most
onerous debt, if all of the same nature and burden, to all of them proportionately
WHEN A DEBT MORE ONEROUS THAN ANOTHER

Debt more onerous if more burden to debtor. Onerous-ment is depended on circumstances, but there are
some rules by the Supreme Court:
1. Interest-bearing debt in more onerous than a non-interest-bearing (even if this may be an older
debt); if two interest-bearing debts, one with a higher rate is more onerous
2. Debt as a sole debtor is more onerous than as a solidary debtor
3. Debts secured by mortgage are more onerous than unsecured ones
4. Obligation with penalty clause is more onerous than one without
WHERE DEBTS SUBJECT TO DIFFERENT BURDENS

If debts are subject to different burdens (e.g. one with penalty, one with mortgage), payment will be
applied to all of them, proportionately

ARTICLE 1255
THE DEBTOR MAY CEDE OR ASSIGN HIS PROPERTY TO HIS CREDITORS IN PAYMENT OF HIS DEBTS. THIS CESSION, UNLESS THERE
IS STIPULATION TO THE CONTRARY, SHALL ONLY RELEASE THE DEBTOR FROM RESPONSIBILITY FOR THE NET PROCEEDS OF THE
THING ASSIGNED. THE AGREEMENTS WHICH ON THE EFFECT OF THE CESSION, ARE MADE BETWEEN THE DEBTOR AND HIS
CREDITORS SHALL BE GOVERNED BY SPECIAL LAWS

(1175A)

REQUISITES OF PAYMENT BY CESSION

Payment by cession a special form of payment. An assignment/abandonment of all the properties of

the debtor for the benefit of his creditors so that the latter may sell and apply the proceeds thereof to the
satisfaction of their credits.
1. There must be two or more creditors
2. Debtor must be (partially) insolvent
3. Cession must be accepted by creditors
EFFECT OF PAYMENT BY CESSION

Unless there is stipulation to the contrary, assignment does not make the creditors owner of the
property of the debtor
Debtor is then released from his obligation only up to the net proceeds of the sale of the property
assigned; debtor still liable if there is remaining balance

DATION IN PAYMENT AND CESSION DISTINGUISHED

Dation
There is usually only one creditor
Does not presuppose insolvency of debtor
Does not involve all properties of debtor
Creditor becomes owner of the thing given
by debtor
Act of novation

Cession
Several creditors
Debtor is insolvent a time of assignment
Extends to all property of debtor subject to
execution
Creditor only acquire the right to sell the
thing and apply proceeds to their credits
proportionately
Not an act of novation

BOTH ARE SUBSTITUTE FORMS OF PAYMENT/PERFORMANCE

NOTE TO SELF

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ARTICLE 1256
IF THE CREDITOR TO WHOM TENDER OF PAYMENT HAS BEEN REFUSED WITHOUT THE CAUSE TO ACCEPT IT, THE DEBTOR SHALL
BE RELEASED FROM RESPONSIBILITY BY CONSIGNATION OF THE THING OR SUM DUE
CONSIGNATION ALONE SHALL PRODUCE THE SAME EFFECT IN THE FOLLOWING CASES:

1.
2.
3.
4.
5.

WHEN THE CREDITOR IS ABSENT OR UNKNOWN, OR DOES NOT APPEAR AT THE PLACE OF PAYMENT
WHEN HE IS INCAPACITATED TO RECEIVE THE PAYMENT AT THE TIME IT IS DUE;
WHEN, WITHOUT JUST CAUSE, REFUSES TO GIVE A RECEIPT
WHEN TWO OR MORE PERSONS CLAIM THE SAME RIGHT TO COLLECT
WHEN TITLE OF OBLIGATION HAS BEEN LOST. (1176A)

MEANING OF

TENDER OF PAYMENT AND CONSIGNATION

1. Tender of payment act (on part of debtor) of offering the credit or amount due to the creditor.
Debtor must show that he has (possession) the thing/money to be delivered at the time of offer.
2. Consignation act of depositing thing/amount due with the proper court when the creditor does
not want or cannot receive it after complying with the formalities provided in the law. Consignation
is always judicial and requires tender of payment.
REQUISITES OF A VALID CONSIGNATION

1.
2.
3.
4.
5.

Existence of valid debt which is due

Tender of payment by debtor and refusal (w/o valid reason) by the creditor to accept it
Previous notice of consignation to people interested in fulfillment of obligation
Consignation of thing/sum due
Subsequent notice of consignation made to the interested parties

WHEN TENDER OF PAYMENT NOT REQUIRED

Tender of payment not necessary before debtor can consign thing due with the court
A creditor without legal justification must inform debtor that payment will not be accepted thereby
waives a payment when payment is due
Debtor is then excused from making a formal tender of the money on that date
Debtor does not incur default by failing to make a fruitless tender after notification from the
creditor that money will not be received

REQUIREMENTS OF VALID TENDER OF PAYMENT

1. Tender of payment must comply with rules of payment, the tender, even if valid, does not itself
produce legal payment, unless it is completed by consignation
2. Must be unconditional and for the whole amount
3. It must be actually made. Manifestation of a desire or intention to pay is enough

ARTICLE 1257
IN ORDER THAT CONSIGNATION OF THE THING DUE MAY RELEASE THE OBLIGOR, IT MUST BE FIRST ANNOUNCED TO THE PERSONS
INTERESTED IN THE FULFILLMENT OF THE OBLIGATION.
THE CONSIGNATION SHALL BE INEFFECTUAL IF IT IS NOT MADE STRICTLY IN CONSONANCE WITH THE PROVISIONS WHICH
REGULATE PAYMENT.

(1177)

PRIOR NOTICE TO PERSONS INTERESTED REQUIRED

Absence of prior notice to the persons interested (guarantors, mortgagees, solidary

debtors/creditors) to fulfill obligation. Consignation as payment shall be void.

NOTE TO SELF

Remember to reread examples in book

Purpose of notice is for creditor to reflect on previous refusal to accept payment because expenses
of consignation shall be charged against him
If the thing consigned is lost, creditor shall bear risk

CONSIGNATION MUST COMPLY WITH PROVISIONS ON PAYMENT

Consignation to amount to a valid payment, must also comply with the provisions which regulate
payment
Payment should be made in legal tender (no bank checks, commercial documents, etc.)

ARTICLE 1258
CONSIGNATION SHALL BE MADE BY DEPOSITING THE THINGS DUE AT THE DISPOSAL OF JUDICIAL AUTHORITY, BEFORE WHOM
THE TENDER OF PAYMENT SHALL BE PROVED, IN A PROPER CASE, AND THE ANNOUNCEMENT OF THE CONSIGNATION IN OTHER
CASES.
THE CONSIGNATION HAVING BEEN MADE, THE INTERESTED PARTIES SHALL ALSO BE NOTIFIED THEREOF.

(1178)

CONSIGNATION MUST BE WITH PROPER JUDICIAL AUTHORITY

Consignation by depositing thing/sum due with proper judicial authority is needed to effect
payment
Tender of payment must be right after consignation
Tender must be proved by debtor in proper case
If tender not required, only prior notice to interested persons of the consignation needs to be
proved

NOTICE TO BE GIVEN TO INTERESTED PARTIES OF THE CONSIGNATION MADE

After consignation, interested parties must also be notified (this was held fulfilled by service of
summons upon the defendants together with copy of complaint)
Purpose of second notice is to enable creditor to withdraw thing/sum deposited in case he accepts
consignation

ARTICLE 1259
THE EXPENSES OF CONSIGNATION WHEN PROPERLY MADE, SHALL BE CHARGED AGAINST CREDITOR.

(1179)

CREDITOR BEARS EXPENSES OF CONSIGNATION

Consignation is necessary because of fault/unjust refusal of creditor to accept payment, therefore it

should be charged against him, chargeable to debtor if consignation is not properly made.

WHEN CONSIGNATION DEEMED PROPERLY MADE

1. Creditor accepts thing/sum deposited without objection as payment for obligation

2. Creditor questions validity of consignation, court hears and may declare it has been properly made
3. Creditor does not accept/question consignation, court hears and may cancel obligation

ARTICLE 1260
ONCE CONSIGNATION HAS BEEN DULY MADE, THE DEBTOR MAY ASK THE JUDGE TO ORDER THE CANCELLATION OF THE
OBLIGATION.
BEFORE CREDITOR HAS ACCEPTED 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
FORCE.

(1180)

NOTE TO SELF

Remember to reread examples in book

WITHDRAWAL BY DEBTOR OF THING OR SUM DEPOSITED

All requisites of consignation operate as valid payment, therefore debtor can move for cancellation
of obligation by the court
Debtor may withdraw the thing/sum deposited before creditor accepts consignation; before judicial
declaration that consignation was properly made as he is still the owner of the same, obligation
shall remain in force (debtor pays expenses)

ARTICLE 1261
IF THE CONSIGNATION HAVING BEEN MADE, THE CREDITOR SHOULD AUTHORIZE THE DEBTOR TO WITHDRAW THE SAME, HE
SHALL LOSE EVERY REFERENCE WHICH HE MAY HAVE OVER THE THING. THE CO-DEBTORS, GUARANTORS AND SURETIES SHALL
BE RELEASED.

(1181A)

EFFECT OF WITHDRAWAL WITH AUTHORITY OF CREDITOR

Consignation is for benefit or creditor therefore he may authorize debtor to withdraw deposit after
he has accepted the same/after court issued order to cancel obligation
Creditor-debtor relation still remain as they were before acceptance/cancellation
Creditor shall lose every preference have may have over thing; co-debtors, guarantors, sureties
shall be released
Solidary debtor released from solidary liability, not from shares of obligation because he is still
principal debtors (like guarantors, sureties)

NOTE TO SELF

Remember to reread examples in book