REVIEW ON THE LAWS ON OBLIGATIONS: PRINCIPLES AND CASES

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EXTINGUISHMENT OF • Unilateral waiver

OBLIGATIONS: • Natural waiver
• Remission
PAYMENT OR PERFORMANCE
• Mutual dissent
☐General Provisions
(disenso)
☐Payment Provisions
• Compromise
☐Application of Payments
▪ Simultaneous with
☐Payment by Cession creation of obligation:
☐Tender of Payment and Consignation • Resolutory term or
extinctive period
• Resolutory
Topic 1: General Provisions condition or
Art. 1231 – Obligations are extinguished: condition
subsequent
(1) By payment or performance; • Involuntary Causes:
(2) By the loss of the thing due; o By failure to bring an action
(3) By the condonation or remission ▪ Ex: prescription of the
of the debt; right of action
(4) By the confusion or merger of the o Resolutory condition or condition
rights of the creditor and the subsequent
debtor; ▪ Ex: merger or confusion
(5) By compensation; ▪ Ex: in personal obligations
(6) By novation. – death of a party
▪ Ex: change of civil status
Other cause of extinguishment of (in family relations)
obligations, such as annulment, o By reason of the object
rescission, fulfillment of a resolutory ▪ Impossibility of
condition, and prescription, are performance
governed elsewhere in this Code. ▪ Loss of the thing due

Classifications by Castan of the Causes of Other Causes from the Civil Code Aside
Extinguishment of Obligations from the Primary Six
• Voluntary Causes 1. Annulment
o Performance 2. Rescission
▪ Payment of performance 3. Fulfillment of a resolutory condition
▪ Consignation 4. Prescription
o Substitution of Performance
▪ Compensation Remaining other causes:
▪ Novation 1. Death of a party in personal
▪ dacion en pago (datio in obligations
solutum) 2. Resolutory term
o Agreement to release 3. Change of civil status
▪ Subsequent to obligation: 4. Compromises

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 REVIEW ON THE LAWS ON OBLIGATIONS: PRINCIPLES AND CASES
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5. Mutual dissent full, unless of course, otherwise

6. Impossibility of fulfillment stipulated in the contract.
7. Fortuitous event o If the debt is the delivery of a thing
or things, by delivery of thing or
Topic 2: Payment Provisions things.
Art. 1232 – Payment means not only the o If the debt is doing of a personal
delivery of money but also the undertaking, by the performance
performance, in any other manner, of an of said personal undertaking.
obligation. o If the debt is not doing of
something, by refraining from
• Payment, defined: that mode of doing the action.
extinguishing obligations which consists of • One good proof is the presentation of a
the (a) delivery of the money and (b) the receipt (Toribio v. Fox, 34 Phil. 913)
performance in any manner of an • In a usury case, it has been held that the
obligation. mere fact that the interest is usurious does
• A person pays a pre-existing obligation. If not necessarily mean that the loan is void.
no such obligation exists, strictly speaking The principal of the loan must still be paid,
there is no payment. otherwise it remains unpaid.
o Ex: A was given the option to buy a
car or not, within the period of one 2 Case A: Gui Jong & Co. v. Rivera and
week. Here, A has no duty to buy. Avellar
But if he decides to buy, an 45 Phil. 778
obligation is created and he must
pay. FACTS: On March 25, 1925, the defendants,
• For payment to properly exist, the creditor Jose Rivera and Regina Avellar, executed a
has to accept the same, expressly or mortgage to the plaintiff, Gui Jong Co, on
implicitly. their sugar cane plantation and carabaos.
The mortgage was executed as security for
Art. 1233 – A debt shall not be the payment of a loan amounting to P8,000,
understood to have been paid unless the with an interest rate of 12% per annum. The
thing or service in which the obligation mortgage also included provisions stating
consists has been completely delivered that the defendants were obligated to
or rendered, as the case may be. consign 2,500 piculs of sugar from the crops
mortgaged and sell it to the plaintiff at a
price lower than the market value. The
• Requisites for a valid payment:
plaintiff filed a complaint against the
o The very thing or service
defendants for breach of the mortgage
contemplated must be paid.
conditions, alleging that they had only
o Fulfillment must be complete.
delivered a portion of the sugar agreed upon
• How payment or performance is made:
and that there was a remaining balance due
o If the money is a monetary
and owing. The defendants, in their defense,
obligation, by delivery of the
claimed that the contract was usurious and
money. The amount paid must be
should be declared null and void.

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the obligor may recover as though there

ISSUE: had been a strict and complete
(1) Whether the defendants are fulfillment, less damages suffered by the
released from the payment of the obligee.
debt due to the usurious nature of
the transaction. • The rule above is adopted from American
(2) Whether the plaintiff is entitled to Law that in case of substantial
recover the full amount of the loan. performance, the obligee is benefitted. Si
the obligor should be allowed to recover as
HELD: The court ruled in favor of the if there had been a strict and complete
plaintiff and held that the defendants are fulfillment.
not released from the payment of the debt • The provision only applies when an
despite the usurious nature of the obligor admits breaching the contract after
transaction. The court also ruled that the honestly and faithfully performing all the
plaintiff is entitled to recover the full material elements thereof except for some
amount of the loan. technical aspects that cause no serious
harm to the obliges.
RATIO:
Art. 1235 – When the obligee accepts the
1) The admission by the mortgagor that he performance, knowing its completeness
received the money and owes it to the or irregularity, and without expressing
plaintiff means that he is not released any protest or objection, the obligation is
from the payment of the debt, even if the deemed fully complied with.
transaction was usurious. In this case,
the defendants admitted to receiving the
• There is a possibility that a protest or
loan amount and were obligated to
objection can be made. Hence, there is
repay it.
what is called “qualified acceptance of
2) Usurious interest does not operate as a
incomplete or irregular payment.”
payment or satisfaction of the original
loan, especially when no interest has
Art. 1236 – The creditor is not bound to
been paid. The court emphasized that
accept payment or performance by a
the defendants had not paid any interest
third person who has no interest in the
on the loan, so the usurious interest
fulfillment of the obligation, unless there
cannot be considered as payment.
is a stipulation to the contrary.
3) Before usurious interest can be
recovered back, it must be both alleged
Whoever pays for another may demand
and proven that the amount of such
from the debtor what he has paid, except
interest had been paid. In this case, the
that if he paid without the knowledge or
defendants failed to allege or prove that
against the will of the debtor, he can only
they had paid any usurious interest.
recover insofar as the payment has been
beneficial to the debtor.
Art. 1234 – If the obligation has been
substantially performed in good faith,

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 REVIEW ON THE LAWS ON OBLIGATIONS: PRINCIPLES AND CASES
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• The creditor can refuse payment by a third return of the P700,000 but also for the
person except: interest in lieu of damages.
o If there is a stipulation allowing
this. 2 Case B: Rehabilitation Finance Corp. v.
o Or if said third person has an Court of Appeals
interest in the fulfillment of the L-5942, 1954
obligation.
• Reasoning of the Code Commission in FACTS: The case involves a promissory note
recommending that the creditor should payable in installments. The makers of the
not be compelled to accept payment or promissory note promised to pay the
performance by a third person who has no obligation on or before October 31, 1951.
interest in the obligation: The payments were to be made in ten
o The Commission believes that the annual installments. The defendants, Jesus
creditor should have a right to de Anduiza and Quintana Cano, failed to pay
insist on the liability of the debtor. the yearly amortizations that fell due in
o The creditor should not be 1942 and 1943. Estelito Madrid, who was
compelled to accept payment from temporarily living with Anduiza during the
a third person whom he may Japanese occupation, learned of the non-
dislike or distrust. payment and offered to pay the debt on
• The third person may pay (bar question): Anduiza's behalf. Madrid made payments
o With the knowledge and consent of totaling P16,425.17 to the Agricultural and
the debtor. Industrial Bank, the creditor, in October
o Without the debtor’s knowledge or 1944. Anduiza later refused to recognize the
against his will. payments and the bank refused to cancel the
mortgage. Madrid then filed a lawsuit
Illustrative Example A: seeking to have the debt declared paid and
the mortgage canceled.
A owes B P1,000,000. Later, A paid B
P700,000, leaving a balance of P300,000. C, ISSUE: The main issue in this case is
a classmate of A, and intending to surprise whether the payments made by Madrid
A, paid B the sum of P1,000,000 thinking were valid and whether the debt should be
that A still owed B that amount. He did this considered paid.
without knowledge of A. How much can C
recover from A? HELD: The Court of Appeals ruled in favor of
Madrid, reversing the lower court's
ANS: C can recover only P300,000 from A, decision. The court directed the
because it is only up to this amount that A Rehabilitation Finance Corporation to
has been benefited. C can recover the cancel the mortgage and ordered Anduiza to
remaining P700,000 from B who should not pay Madrid the amount of P16,425.17.
have accepted complete payment for a debt
already partially paid. If B incidentally is in RATIO: The court's ruling is based on Article
bad faith, B is responsible not only for the 1158 of the Civil Code of Spain, which was in
force in the Philippines at the time of the

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 REVIEW ON THE LAWS ON OBLIGATIONS: PRINCIPLES AND CASES
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payments. The article states that payment o A payor in this case would be
may be made by any person, whether the entitled not merely to full
debtor approves or is unaware of it. The reimbursement but also to
payor can recover the amount paid from the subrogation, or the right to bring
debtor, unless it was made against the actions against the debtor as
debtor's express will. In this case, the court mortgagee or against third
found that Madrid was entitled to make the persons.
payments on Anduiza's behalf, regardless of
Anduiza's will or the objection of the bank. Illustrative Example B:
The court also noted that the effects of
payment should be determined at the time A borrowed P1 million from B. The loan was
it was made and should not be subject to secured by a mortgage of A’s land in favor of
modification by subsequent acts or B. Without the knowledge of A, C paid B the
omissions of the debtor. The court sum of P1 million for A’s debt. A benefited to
concluded that the payments made by the amount of P1 million.
Madrid were valid and beneficial to Anduiza,
and therefore, the debt should be 1) May C claim reimbursement from A?
considered paid. 2) If so, how much?
3) If A cannot pay, may C foreclose the
Art. 1237 – Whoever pays on behalf of mortgage on A’s land?
the debtor without the knowledge or
against the will of the latter, cannot ANS:
compel the creditor to subrogate him in 1) Yes, C can claim reimbursement from A
his rights, such as those arising from a inasmuch as C paid A’s debt.
mortgage, guaranty, or penalty. 2) C can recover the whole amount of P1
million inasmuch as the problem states
• Subrogation, defined: the act of putting that A benefited up to the amount of P1
somebody into the shoes of the creditor, million.
hence, enabling the former to exercise all 3) If A cannot pay, C cannot foreclose the
the rights and actions that could have been mortgage on A’s land. It is true that the
exercised by the latter. original creditor B had the right to
• Subrogation transfers to the person foreclose in case of non-payment, BUT
subrogated the credit with all the rights in this case, the new creditor C had not
thereto appertaining, either against the been subrogated in the rights of B,
debtor or against third persons. inasmuch as C paid without the
• Subrogation vs. Reimbursement: In knowledge of A. The only right of C
subrogation, recourse can be had to the therefore is reimbursement up to the
mortgage or guaranty or pledge; in amount A had benefited, but NOT the
reimbursement, there is no recourse. right of subrogation. “Whoever pays on
behalf of the debtor without the
• Suppose a payor pays the creditor with the
knowledge or against the will of the
express or implied consent of the debtor,
latter, cannot compel the creditor to
what are the rights of the payor?
subrogate him in his rights, such as

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those arising from a mortgage, etc.” (Art. that C can recover from A is to the extent
1237, Civil Code). that A has been benefited by C’s
payment to B in A’s behalf.

Art. 1238 – Payment made by a third

person who does not intend to be
reimbursed by the debtor is deemed to Art. 1239 – In obligations to give,
be a donation, which requires the payment made by one who does not have
debtor’s consent. But the payment in any the free disposal of the thing due and
case valid as to the creditor who has capacity to alienate it shall not be valid,
accepted it. without prejudice to the obligations of
Article 1427 under the Title on “Natural
• Reason why debtor has to consent – no one Obligations.”
should be compelled to accept the
generosity of another. (Report of the Code • General rule – If person paying has no
Commission) capacity to give:
o Payment is not valid – if accepted;
Illustrative Example C: o Creditor cannot even be compelled
to accept it;
A owes B P1 million. C, in behalf of A, pays B o The remedy of consignation would
P1 million against the consent of A, although not be proper;
C had previously told A that he (C) did not • Exception: Art. 1427, NCC – “When a minor
intend to be reimbursed. Needless to say, B between eighteen and twenty-one years of
accepted the payment by C in behalf of A. age, who has entered into a contract
without the consent of the parents or the
a) Is A’s obligation towards B guardian voluntarily pays a sum of money
extinguished? or delivers a fungible thing in fulfillment of
b) May C still recover from A, because of the obligation, there shall be no right to
the fact that A did not consent to what recover the same from the obligee who has
the law deems a donation on the part of spent or consumed it in good faith.
C in favor of A?
Article 1240 – Payment shall be made to
ANS: the person in whose favor the obligation
has been constituted, or his successor in
a) Yes, A’s obligation toward B is interest, or any person authorized to
extinguished even if A did not consent to receive it.
the donation.
b) Yes, C may still recover from A, although • To whom payment must be made:
originally C did not intend to be o To the person in whose favor the
reimbursed. This is so because here obligation has been constituted
there has been no real donation. (the creditor);
However, since the payment by C had o To the successor-in-interest (like
been effected against the will of A, all the heirs)

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o To any person authorized to case, the defendant failed to provide

receive it. sufficient evidence to support his claim.
b) Payment must be made to the person in
2 Case C: Harry E. Keeler Electric Co., Inc. whose favor the obligation is
v. Rodriguez constituted or to another authorized to
G.R. No. 19001, November 11, 1922 receive it in his name. In this case, there
is no evidence that the plaintiff
FACTS: The plaintiff, Harry E. Keeler Electric authorized Montelibano to receive or
Co., Inc., is a domestic corporation engaged receipt for the money. The defendant
in the electrical business. The defendant, made the payment at his own risk based
Domingo Rodriguez, is a resident of Talisay, on Montelibano's representations of
Occidental Negros. A.C. Montelibano, a being authorized to receipt for the
resident of Iloilo, approached the plaintiff money.
claiming that he could find purchasers for
the "Matthews" electric plant and would be Article 1241 – Payment to a person who
paid a commission for his services. Through is incapacitated to administer his
Montelibano's efforts, the plaintiff sold one property shall be valid if he has kept the
of the plants to the defendant, which was thing delivered, or insofar as the
shipped from Manila to Iloilo and installed payment has been beneficial to him.
on the defendant's premises. However,
without the knowledge of the plaintiff, the Payment made to a third person shall
defendant paid the purchase price to also be valid insofar as it has redounted
Montelibano. The plaintiff filed a case to the benefit of the creditor. Such benefit
against the defendant, alleging that the plant to the creditor need not be proved in the
was sold and delivered to the defendant, but following cases:
no payment was made.
(1) If after the payment, the third
ISSUE: person acquires the creditor’s
a) Whether the defendant has proven that rights;
he paid the purchase price to the (2) If the creditor ratifies the
plaintiff. payment to the third person;
b) Whether the payment made to (3) If by the creditor’s conduct, the
Montelibano is a valid defense against debtor has been led to believe
the plaintiff. that the third person had the
authority to receive the payment.
HELD: The Supreme Court ruled in favor of
the plaintiff. • The first paragraph deals with payment to
an incapacitated person; the third
RATIO: paragraph deals with payment to an
a) The burden of proof lies on the unauthorized third person.
defendant to prove that he paid the QUESTIONS and ANSWERS on the FIRST
purchase price to the plaintiff. In this PARAGRAPH

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• Is payment to a person incapacitated to o Payment by payor must be made in

manage or administer his property valid? good faith.
o Such payment is valid only if the o The payee must be in possession of
incapacitated person has kept the the credit itself.
thing delivered or
o Insofar as the payment has been Art. 1243 – Payment made to the creditor
beneficial to him. by the debtor after the latter has been
• A owes B P1 million. When A paid B, the judicially ordered to retain the debt shall
latter was already insane. However, the not be valid.
money was never spent, and is still in the
possession of B. Is A’s obligations • The judicial order may have been
extinguished? prompted by an order of attachment,
o Yes. B was incapacitated to injunction, or garnishment.
administer his own property, yet B • Garnishment, defined: “The proceeding
has kept the thing delivered hence by which a debtor’s creditor is subjected to
A’s payment is valid. the payment of his own debt to another. It
• [Cont.] Suppose that a swindler had asked consists in the citation of some stranger to
B for P1 million in exchange for a ring the litigation, who is the debtor of one of
worth P500 thousand, does A’s payment the parties to the action. Such debtor-
remain valid? stranger becomes a forced intervenor, and
o A’s payment remains valid up to the court having acquired jurisdiction over
the extent of P500 thousand, the person required him to pay the debt
because this is the only amount not to his former creditor but to a new
that B really benefited from A’s creditor.
payment. o Ex: A owes B P1,000,000. B, in turn,
• Who has the burden of proving that the owes C P100,000. C brings an
payment has benefited the incapacitated action against B, who, however,
payee? claims insolvency but admits the
o The one who made the payment. credit which he has over A. Before
A pays B, A is summoned into the
On the SECOND PARAGRAPH proceedings, and asked to retain
• Effect of payment – the payment is valid the debt in the meantime. Thus, the
but only to the extent of benefit (financial, debt is “garnished.” The reason is A
moral, or intellectual) to the creditor, and should not pay B, and instead he
is not presumed except in the three should pay C, should C really be
instances provided in the article. adjudged the creditor of B. Any
payment made by A to B in the
Art. 1242 – Payment made in good faith meantime is considered invalid
to any person in possession of the credit under the law.
shall release the debtor. • Interpleader, defined: An action in which
a certain person in possession of certain
• Requisites: property wants claimants to litigate
among themselves for the same.

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o Whenever conflicting claims upon In obligations to do or not to do, an act or

the same subject matter are or may forbearance cannot be substituted by
be made against a person who another act or forbearance against the
claims no interest in the subject obligee’s will.
matter, he may bring an action
against the conflicting claimants to • Instances where the article does not apply:
compel them to litigate their o In case of facultative obligations;
several claims. o In case where there is another
o Ex: A has in his possession some agreement resulting in either:
merchandise, to be delivered to the ▪ Dation in payment
person who presents the proper ▪ Novation
receipt. B and C, each armed with a o In case of waiver by the creditor
receipt, ask A to turn over the (expressly or impliedly).
property to one of them. An • Ex: A is obliged to give B a Jaguar car. Not
examination of the receipts reveals having a Jaguar car, A wants B to accept a
that they are of exactly the same Rolls-Royce, a more expensive car, but B
kind. A does not know to whom he refuses to accept. Is B justified legally in
should deliver the property. So he refusing to accept?
files an action in court by means of o Yes. Even if the Rolls Royce be more
which B and C will be able to settle valuable than the Jaguar, if B does
their confl icting rights. The court not want the Rolls Royce, he cannot
must now issue an order be compelled by A to accept it. The
prohibiting payment to either B terms of the contract form the law
and C in the meantime. Despite the between the parties, and the
receipt of the order, A pays B, who subject matter cannot be changed
is the brother of his (A’s) without the consent of the parties.
sweetheart. Is said payment valid?
o No, The payment here was made
Art. 1245 – Dation in payment, whereby
after the debtor had been judicially
property is alienated to the creditor in
ordered to retain the debt.
satisfaction of a debt in money, shall be
• Injunction, defined: It is a judicial process governed by the law of sales.
by virtue of which a person is generally
ordered to refrain from doing something. It
• Dation in payment, defined: It is that
is called preliminary injunction if the
mode of extinguishing an obligation
prohibition is during the pendency of
whereby the debtor alienates in favor of
certain proceedings.
the creditor, property for the satisfaction
of monetary debt.
Art. 1244 – The debtor of a thing cannot
• Synonyms for dation in payment:
compel the creditor to receive a different
o Datio in solutum
one, although the latter may be of the
o Adjudicacion en pago
same value as, or more valuable than
• Examples:
that which is due.
o To pay my debt of P1,000,000 in
favor of Bella, I gave her with her

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consent a diamond ring instead creditor cannot demand a thing of

worth P1,000,000. superior quality. Neither can the debtor
o To pay off his debt, an heir deliver a thing of inferior quality. The
assigned his inheritance in an purpose of the obligation and other
estate to his creditor. circumstances shall be taken into
• Conditions in which a dation in consideration.
payment would be valid:
o If the creditor consents • If the contract does not specify the quality:
o If the dation in payment will not o If the creditor cannot demand a
prejudice the other creditors thing of superior quality
o If the debtor is not judicially o The debtor cannot deliver a thing
declared insolvent of inferior quality, but if he so
• Dation in payment vs. Sale desires, he may deliver one of
DATION IN PAYMENT SALE superior quality
• There is a pre- • When contract is void
existing credit. o When the KIND and QUANTITY (as
• There is no
• This extinguishes distinguished from quality) cannot
pre-existing
the obligation. be determined without need of a
credit.
• The cause or new agreement of the parties, the
• This gives rise
consideration here contract is void. (Art. 1349 and
to obligations.
from the viewpoint 1409, No.6 6)
• The cause or
of debtor is the
consideration
extinguishment of Art. 1247 – Unless it is otherwise
is the price or
his debt and from stipulated, the extrajudicial expenses
the obtaining
the creditor, the required by the payment shall be for the
of the object.
acquisition of the account of the debtor. With regard to the
• There is
object offered in judicial costs, the Rules of Court shall
greater
credit. govern.
freedom in
• There is less
the
freedom in the • How judicial costs are determined
determinatio
determination of o Generally, costs shall be awarded
n of the price.
the price. to the winning party, subject to the
• The giving of
• The giving of the discretion of the court.
the price may
object in lieu of the o Rule 142 of the Rules of Court
generally end
credit may governs judicial costs.
the obligation
extinguish partially o No costs shall be allowed against
of the buyer.
or completely the the Government unless provided
credit. by law.

Art. 1246 – When the obligation consists Art. 1248 – Unless there is an express
in the delivery of an indeterminate or stipulation to that effect, the creditor
generic thing, whose quality and cannot be compelled partially to receive
circumstances have not been stated, the

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the prestations in which the obligation The delivery of promissory notes

consists. Neither may the debtor be payable to order, or bills of exchange or
required to make partial payments. other mercantile documents shall
produce the effect of payment only when
However, when the debt is in part they have been cashed, or when through
liquidated and in part unliquidated, the the fault of the creditor they have been
creditor may demand and the debtor impaired.
may effect the payment of the former
without waiting for the liquidation of the In the meantime, the action derived from
latter. the original obligation shall be held in
abeyance.
• Exceptions:
Partial performance is allowed: • Legal tender, defined: It is that which a
o When there is stipulation to this debtor may compel the creditor to accept
effect; in payment of the debt.
o When the different prestations are • Delivery of commercial instruments:
subject to different conditions or o A check is not legal tender, and
terms (like installments); therefore, the creditor cannot be
o When a debt is in part liquidated compelled to accept payment
and in part unliquidated, in which through this means.
case performance of the o Instances when a check or a
unliquidated part may be insisted commercial document should be
either by debtor or creditor; accepted:
o When a joint debtor pays his share ▪ When the creditor is in
or the creditor demands the same; estoppel or he had
o When a solidary debtor pays only previously promised he
the part demandable because the would accept the check;
rest are not yet demandable on ▪ When the check has lost its
account of their subject to different value because of the fault
terms and conditions; of the creditor;
o In case of compensation, when one ▪ When the payment occurs
debt is larger than the other, it not because of a debt but
follows that a balance is left; because of the exercises of
o When work is done by parts. the right of conventional
redemption.
Art. 1249 – The payment of debts in o Problem: In payment of his debt, D
money shall be made in the currency paid C a promissory note payable
stipulated, and if it is not possible to to C’s order. C accepted the
deliver such currency, then in the promissory note. Does this mean
currency which is legal tender in the that the payment has been
Philippines. effected?
▪ Not yet. The effect of
payment in this case will be

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produced only when the ▪ If an obligation is to deliver

note has been cashed; and a determinate specific
also, even if it cannot be thing, then in the place
cashed because of the where the thing might be at
creditor’s fault. the time the obligation was
constituted.
Art. 1250 – In case of an extraordinary ▪ If the obligation is any
inflation or deflation of the currency other thing, delivery must
stipulated should intervene, the value of be made in the domicile of
the currency at the time of the the debtor.
establishment of the obligation shall be
the basis payment, unless there is an Topic 3: Subsection 1:
agreement to the contrary. Application of Payments
Art. 1252 – He who has various debts of
• Inflation, defined: It is a sharp sudden the same kind in favor of one and the
increase of money or credit or both same creditor, may declare at the time of
without a corresponding increase in making the payment, to which of them
business transaction. the same must be applied. Unless the
parties so stipulate, or when the
Art. 1251 – Payment shall be made in the application of payment is made by the
place designated in the obligation. party for whose benefit the term has
been constituted, application shall not
There being no express stipulation and if be made as to debts which are not due
the undertaking is to deliver a yet.
determinate thing, the payment shall be
made wherever the thing might be at the If the debtor accepts from the creditor a
moment the obligation was constituted. receipt in which an application of the
payment is made, the former cannot
In any other case the place of payment complain of the same, unless there is a
shall be the domicile of the debtor. cause for invalidating the contract.

If the debtor changes his domicile in bad • Special forms of payment:

faith or after he has incurred in delay, the o Application or imputation of
additional expenses shall be borne by payments.
him. o Dation in payment / adjudicacion
en pago / datio in solutum.
These provisions are without prejudice o Assignment in favor of creditors.
to venue under the Rules of Court. o Tender of payment and
consignation.
• Where payment must be made: • Application of payments, defined: It is
o If there is a stipulation – in the the designation of the debt to which should
place designated be applied a payment made by the debtor
o If there is no stipulation

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who owes several debts in favor of the debtor, among those due, shall be
creditor. deemed to have been satisfied.
• Requisites for application of payment to be
made use of: • Examples of more
o There must be two or more debts; onerous/burdensome debts:
o The debts must be of the same o Older ones in case of running
kind; accounts;
o The debts are owed by the same o Interest-bearing debts even if the
debtor in favor of the same non-interest-bearing debts are
creditor; older;
o All the debts must be due; o Of two-interest bearing debts, that
o The payment is not enough to which charges the higher interest;
extinguish all the debts. o Debts secured by mortgage or
• How application is made: pledge;
o The debtor makes the designation. o Debts with a penalty clause;
o If not, the creditor makes it, by so o Advances for subsistence are more
stating in the receipt that he issues onerous than cash advances;
“unless there is cause for o A debt where the debtor is in more
invalidating the contract.” is more onerous than one where he
o If neither the creditor or debtor, it is not.
is made by the operation of law. o An exclusive debt (not solidary) is
• If the creditor makes the application more onerous than a solidary debt.
without the knowledge of the debtor, the • Determination of which obligation is
application is not valid. more onerous - determining the most
onerous obligation can be challenging, as it
Art. 1253 – If the debt produces interest, depends on relative burdens. No strict
payment of the principal shall not be rules apply universally, and the
deemed to have not made until the assessment involves considering various
interests have been covered. circumstances. For example, if one
obligation is secured by a mortgage, non-
• The article is obligatory, the debtor cannot interest bearing, and recent (Obligation A),
insist that his payment be credited to the while another is unsecured but maximum
principal instead of the interest. interest bearing and old (Obligation B), a
• Effect if payment is credited to the careful examination of relevant factors is
principal – the reduction of the principal necessary for a balanced decision. When
would result in the decrease of the total it's difficult to definitively establish which
interest collectible. debt is more burdensome, the suggested
approach is to consider both as equally
Art. 1254 – When the payment cannot be onerous, and payments should be applied
applied in accordance with the proportionately (pro rata).
preceding rules, or if application cannot • Problem: If one debt is P1.2 million and the
be inferred from other circumstances, other is P600,000, and the debtor without
the debt which is most onerous to the making any application of payment gives

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P300,000, how should said payment be o Abandonment of all debtor’s

applied, presuming that both are of the property not exempt from
same nature and burden? execution;
o ANS: The payment will be applied o Acceptance or consent on the part
proportionately. Hence, P200,000 of the creditors.
will be deducted from the first, and • Effect of voluntary assignment:
P100,000 will be deducted from o The creditors do not become the
the second. The first debt will now owners; they are merely assignees
be P1 million and the second will with the authority to sell;
be P500,000. The ratio here of the o The debtor is released up to the
first debt to the second debt is thus amount of the net proceeds of the
preserved, namely, 2 is to 1. sale unless another stipulation to
the contrary;
Topic 4: Subsection 2: o Creditors will collect credit in
Payment by Cession order of preference agreed upon.
Art. 1255 – The debtor may cede or
assign his property to his creditors in Topic 5: Subsection 3:
payment of his debts. This cession, Tender of Payment and Consignation
unless there is stipulation to the Art. 1256 – If the creditor to whom
contrary, shall only release the debtor tender of payment has been made
from responsibility from the net refuses without just cause to accept it,
proceeds of the thing assigned. The the debtor shall be released from
agreements which, on effect of the responsibility by the consignation of the
cession, are made between the debtor thing or sum due.
and his creditors shall be governed by
special laws. Consignation alone shall produce the
same effect in the following cases:
• Cession or Assignment of Creditors,
defined: It is the process by which a debtor (1) When the creditor is absent or
transfers all the properties not subject to unknown, or does not appear at
execution in favor of his creditors so that the place of payment;
the latter may sell them and thus apply the (2) When he is incapacitated to
proceeds to their credits. receive the payment at the time it
• Kinds or classes of assignment: is due;
o Legal (governed by the insolvency (3) When, without just cause, he
law) refuses to give a receipt;
o Voluntary (4) When two or more persons claim
• Requisites for voluntary assignment: the same right to collect;
o More than one debt; (5) When the title of the obligation
o More than one creditor; has been lost.
o Complete or partial insolvency of
debtor; • Tender of payment, defined: The act of
offering the creditor what is due him

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 REVIEW ON THE LAWS ON OBLIGATIONS: PRINCIPLES AND CASES
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together with a demand that the creditor o When the creditor is incapacitated
accept the same. to receive payment at the due time,
• Consignation, defined: The act of unless the creditor has a known
depositing the thing due with the court or legal representative.
judicial authorities whenever the creditor o When, without just cause, the
cannot accept or refuses to accept creditor refuses to provide a
payment. It generally requires a prior receipt (although this presupposes
tender of payment. a prior tender).
• Tender of payment vs. Consignation: o When two or more persons claim
Tender is the precursor to consignation, the same right to collect (suitable
serving as a preliminary act before the for an action in interpleader).
principal act of consignation. Tender can o When the title (written document)
occur outside of legal proceedings, while of the obligation has been lost.
consignation is inherently a judicial o When the debtor has been
process. The priority of tender is to previously notified by the creditor
attempt a private settlement before that no payment will be accepted
resorting to the formalities of (Banahaw, Inc. v. Dejarme, 55 Phil.
consignation. 338).
• When consignation is not required – In
certain situations, consignation may be Art. 1257 – In order that the
unnecessary, and a simple tender is consignation of the thing due may
sufficient. This applies when there is no release the obligor, it must first be
actual debt or obligation, and payment is announced to the persons interested in
entirely voluntary. In such cases, the the fulfillment of the obligation.
person making the offer could have chosen
not to make the offer at their discretion. The consignation shall be ineffectual if it
• When creditor is justified in refusing is not made strictly in consonance with
tender of payment – the creditor may the provisions which regulate payment.
refuse if the tender of payment is not valid,
to be valid, the following must occur: Essential requisites for consignation:
o It must be made in legal tender; 1. Existence of a valid debt
o It must include whatever interest o In case of an option, there is
is due; privilege, not an obligation or a debt.
o Generally, it must be ▪ Ex: A was given the option
unconditional; to cancel a contract
o The obligation must already be provided he paid P600
due. thousand. Mere tender is
• Consignation without tender is allowed in sufficient to preserve the
the following cases: right to cance.
o When the creditor is absent, o In case of legal redemption, there
unknown, or does not appear at is as yet no debt.
the place of payment. o In case of conventional
redemption, there is as yet no debt.

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2. Valid prior tender ▪ Or that the creditor had

3. Prior notice of consignation previously notified the
o The law says that the consignation debtor that consignation
must first be announced to the will be made.
persons interested in the fulfillment
of the obligation. Art. 1259 – The expenses of
o Without such notice, the consignation, when properly made, shall
consignation as payment is void. be charged against the creditor.
4. Actual consignation
o Before a deposit is made, a • Reason: the consignation is due to the
complaint against the creditor to acceptance of the creditor. If not properly
compel him to accept has to be first made, the expenses are chargeable to the
filed in court. debtor.
o The consignation must be made –
▪ By depositing the very Art. 1260 – Once the consignation has
object that is due. been duly made, the debtor may ask the
▪ Accompanied by proof that judge to order the cancellation of the
tender has been duly made. obligation.
▪ With proper judicial
authority. Before the creditor has accepted the
5. Subsequent notice of consignation consignation, or before a judicial
o This is mandatory and therefore declaration that the consignation has
without subsequent notice, the been properly made, the debtor may
consignation is void. withdraw the thing or the sum
deposited, allowing the obligation to
Art. 1258 – Consignation shall be made remain in force.
by depositing the things due at the
disposal of judicial authority, before the
• Effects of Properly-Made Consignation:
tender of payment shall be proved, in a
o The debtor may ask the judgment
proper case, and the announcement of
to order the cancellation of the
the consignation in other cases.
obligation.
o The running of interest is
The consignation having been made, the
suspended.
interested parties shall also be notified
o However, before the creditor
thereof.
accepts, or before the judge
declares the consignation having
• How consignation is actually made: been properly made, the obligation
o The things due must be deposited remains.
with the proper judicial • The creditor bears the risk of loss if the
authorities. consignation is judicially-approved or if
o There must be proof that: the creditor has signified his acceptance of
▪ Tender had previously the consignation.
been made. • Effects of Improper Consignation:

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 REVIEW ON THE LAWS ON OBLIGATIONS: PRINCIPLES AND CASES
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o The obligation remains because

the consignation is not effective as
a payment.
o The debtor is in default is at the
time the consignation was due and
the requisites for consignation are
absent.
• When the Debtor May Withdraw the
Thing or Sum Consigned:
o As a matter of right:
▪ Before the creditor has
accepted the consignation.
▪ Before there is a judicial
declaration that the
consignation has been
made.
o As a matter of priviledge:
▪ The creditor authorizes the
debtor to withdraw after a
judicial declaration.

Art. 1261 – If the consignation having

been made, the creditor should
authorize the debtor to withdraw the
same, he shall lose every preference
which he may have over the thing. The
co-debtors, guarantors and sureties shall
be released.

• The consignation having been made

means that the creditor has accepted or
the court has approved the consignation.
• Effects:
o The obligation remains.
o The creditor loses any preference
over the thing.
o The co-debtors, guarantors, and
sureties are RELEASED.
• NOTE: the co-debtors referred to are the
solidary debtors and not the joint ones.

CIVIL CODE | BOOK IV | TITLE I | ARTICLES 1231 – 1261 | LOBO