Extinguishment of Obligations

d. If the obligation is in monetary, payment

must be made in legal tender

Causes of extinguishment of obligations

1. Payment or performance
2. Loss of thing due
3. Condonation or remission of debt
4. Confusion or merger of rights of creditor
and debtor
5. Compensation
6. Novation
Other causes:
Annulment,
rescission,
fulfillment
resolutory condition and prescription

of

PAYMENT OR PERFORMANCE
Payment is not only the delivery of money
but also performance of an obligation
Fulfillment of prestation due, a fulfillment that
extinguishes the obligation by the realization
of the purposes for which it was constituted
Juridical act which is voluntary, licit and made
with the intent to extinguish and obligation
Requisite of payment:
a. Person who pays
b. Person to whom payment is made
c. Thing to be paid
d. Manner, time and place of payment
Tolentino Requisite:
a. Identity of prestation the very thing or
service due must be delivered or released
b. Integrity the prestation must be fulfilled
completely
Kinds of payment:
a. Normal when debtor voluntarily performs
the prestation stipulated
b. Abnormal when he is forced by means of
judicial proceedings, either to comply with
the prestation or pay indemnity
How payment is made:
a. There must be delivery of the thing or
rendition
of
the
service
that
was
contemplated
b. Obligation to do or not to do, an act or
forbearance cannot be substituted by another
act or forbearance against the obligees will
c. In obligation to a generic thing whose quality
and circumstance have not been stated, the
creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing
of inferior quality. The purpose of the
obligation and other circumstances shall be
taken in consideration

Time of payment must be on the date

stipulated
Proof of payment devolves upon the debtor
who offers such a defense to the claim of the
plaintiff creditor
Issuance of receipt is a consequence of good
faith and usage and refusal thereof is a
ground of consignation

Art. 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 oblige.
It must be slight, technical and unimportant
and must not pervade the whole or material
Non-performance of a material part of a
contract will prevent the performance from
amounting to a substantial compliance
But if in bad faith (knowingly and willfully)
pays to perform perform his contract in any
respect, or omits to perform a material part of
it, cannot be permitted to compel the other
party to perform.
The party who has substantially performed
may enforce specific performance or recover
damages.
The other part may by an independent action
or counterclaim recover from the first party
the damages which he has sustained by the
latters failure to completely fulfill his
obligation.
The party who has received the benefit of
substantial compliance cannot require the
performance of the residue as a condition
precedent to his liability
The payment or performance must be
complete. Except:
a. If the obligation has been substantially
performed in good faith, the obligor may
recover as though there had been strict and
complete fulfillment, less damages suffered
by the obligee (1233)
b. 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 (1235)
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.
Partial payments may be made in the
following:
a. The creditor cannot be compelled to receive,
and debtor cannot be compelled to make,
partial payments, except:
1. When there is an agreement to that effect
(1248)
2. 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
the liquidation of the latter. (1428)
The unliquidated part, once it is
finally determined, must also be
paid, to extinguish the obligation
A person entering into a contract
has a right to insist on its
performance but if chooses to waive
any of the terms introduced for his
own benefit, he may do so. He is not
obliged to accept anything else in
place of that which he has
contracted for; and if he does not
waive this right the other party
cannot recover against him without
performing all the stipulations on his
part
To constitute a waiver, there must be
an intentional relinquishment of a
known right.
There must have been acceptance of
the defective performance with
actual
knowledge
of
the
incompleteness or the defect, under
circumstances that would indicate
an
intention
to
consider
the
performance
as
complete
and
renounce any claim arising from the
defect
Estoppel of creditor creditor
cannot object because of defects in
performance resulting from his own
acts or directions. And where a party
makes particular objections to the
sufficiency of performance, he is
estopped to later set up other
objections
Article 1236. The creditor is not 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)
Right of third person a person who pays
a debt for the account of another may
recover from the debtor the sum so paid out,
at least to the extent in which the payment
may have been beneficial to the debtor. Such
payment cannot be considered as payment of
what is not due under Art. 2154, and cannot
be recovered from the creditor by the person
who paid; the right of the payor is against the
debtor whose obligation he has paid.
The third person who paid anothers debt is
entitled to recover the full amount he has
paid
However, the limits his recovery to which the
debtor benefited if the debtor has no
knowledge of, or has expressed his opposition
to such payment.
If debtor expressed his opposition to such
payment by third person, the latter may only
recover the amount that may have been
beneficial to the creditor
(PRESCRIPTION) a partial payment made by a
stranger of the obligation without the
authorization of the debtor will not stay the
running of the period of prescription with
respect to the remainder of the debt
When a person has a right to repurchase
certain property, payment by a third person
of the repurchase price does not constitute a
payment by third person under Art. 1236.
Judgment creditor was not a debtor, he was
under no obligation to repurchase the land
from the vendee. Ha had the right to do so
whether he exercised this right or not
depended upon his own volition. Art. 1236 is
not applicable. (Gonzaga vs. Garcia)
It is optional for the creditor to accept
payment from a third person. If the debtor
opposes the payment by a third person, the
latter will be entitled to recover from the
debtor only to the extent that the payment
has benefited him. But as between debtor
and creditor, the obligation is extinguished

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)
The right to recover from the debtor is based
on the mere fact of payment and
consideration of justice but it gives to the
third person who paid only a simple personal
action for reimbursement without the
securities, guaranties, and other rights
recognized in the creditor, which are
extinguished by the payment.
In case where subrogation takes place by
virtue of payment of the credit, the payor
actually steps into the shoes of the creditor
and becomes entitled, not only to recover
what he has paid, but also to exercise all
rights which the creditor could have
exercised.
Subrogation of creditor there is subrogation
if the creditor willingly and spontaneously
permit the third person who has paid to be
subrogated in his rights, even without the
consent of the debtor.
There is no provision of subrogation of
creditor. The creditor may, however, assign
his rights to a third person, but in such case
the resulting rights and obligations of the
There is no provision of subrogation of
creditor. The creditor may, however, assign
his rights to a third person, but in such case
the resulting rights and obligations of the
creditor and third person would be different
from those arising from payment
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 debtor's
consent. But the payment is in any case
valid as to the creditor who has accepted it.
(n)
(Self-explanatory)
Article
1239. In
obligations
to
give,
payment made by one who does not have
the free disposal of the thing due and
capacity to alienate it shall not be valid,
without prejudice to the provisions of
article 1427 under the Title on "Natural
Obligations." (1160a)

Where the person paying has no capacity to

make the payment, the creditor cannot be
compelled to accept it. Consignation is not
proper. In case he accepts it, payment will not
be valid except in the case provided in art.
1427.
(Article 1427. When a minor between eighteen and
twenty-one years of age, who has entered into a
contract without the consent of the parent or
guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the
same from the obligee who has spent or consumed
it in good faith.)

Article 1240. Payment shall be made to the

person in whose favor the obligation has
been constituted, or his successor in
interest, or any person authorized to
receive it. (1162a)
Repayment of a debt must be made to the
person in whose favor the obligation is
constituted, or to another authorized to
receive the payment in his name
Authority may be legal (conferred by law) or
conventional (when the authority has been
given by the creditor himself, as when an
agent is appointed to collect from the debtor)
Payment made by the debtor to a wrong
party does not extinguish the obligation as to
the creditor, if there is no fault or negligence
which can be imputed to the latter except in
cases provided in Art. 1241. Such wrong
payment does not prejudice the creditor, and
accrual of interest is not suspended by it.
Deposit of the amount in bank, in the name
and to the credit of the creditor, without
authorization of the latter, does not
constitute payment; but when the creditor
cannot be found in the place of payment,
such deposit may be a valid excuse for not
holding the debtor in default
Consignation in court, when properly made,
extinguish the obligation, but where the
creditor institutes an action for the collection
of the amount of the obligation, with interest,
and debtor deposits the amount in court, but
in a different case which is separate and
distinct in nature from which payment is
demanded, such deposit does not amount to
payment.

Article 1241. Payment to a person who is

incapacitated to administer his property
shall be valid 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 be proved in the
following cases:
(1) If after the payment, the third person
acquires the creditor's rights;
(2) If the creditor ratifies the payment to
the third person;
(3) If by the creditor's conduct, the debtor
has been led to believe that the third
person had authority to receive the
payment. (1163a)
Payment to incapacitated person when the
creditor is incapacitated to receive payment,
this must be made to his legal representative,
if any. If none, then the debtor may relive
himself of responsibility by delivering the
thing to the court in consignation, by virtue of
Art. 1256
Payment shall be considered as having
benefited the incapacitated person, if he
made an intelligent and reasonable use
thereof, for purposes necessary or useful to
him even if at the time of the complaint the
effect of such use no longer exist.
Payment may be made to a third person (if
creditor is incapacitated), the person who has
paid, however, has the right to recover the
payment from such third person. If he cannot
recover such payment from such person, then
he suffers loss
Debtor is not released from liability by a
payment to one who is not the creditor nor
one authorized to receive the payment, even
if the debtor believed in good faith that he is
the creditor, except to the extent that the
payment inured to the benefit of the creditor
Payment to a third person releases the debtor
in the following:
a. When without notice of the assignment of
credit, he pays to the original creditor
(1626)
b. When in good faith, he pays to one in
possession of the credit (1242)

Even when the creditor receives no benefit

from the payment to a third person he cannot
demand payment anew, if the mistake of the
debtor was due to the fault of the creditor.
If the creditor sends a signed receipt for
payment by ordinary mail to the debtor, but
happens to fall into the hands of a third
person who presents it to the debtor and the
latter pays on the strength of signed receipt,
the debtor cannot be made to pay again to
the creditor.
Article 1242. Payment made in good faith
to any person in possession of the credit
shall release the debtor. (1164)
Possession of credit this is an exception
to the rule that payment must be made to
the creditor or his authorize representative
The person in possession of credit is neither
the creditor nor authorized by him to receive
payments,
but
appears,
under
the
circumstances, to be the creditor, although in
reality he may not be the owner
Must consider the nature of credit, forms of
its transmission, manner in which it has been
actually transferred and relation of the
possessor of the credit to the obligation itself
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)
The debtor can always deliver the money in
court by way of consignation and thus relieve
himself of further liability
The delivery and transmission of ownership of
a thing by the debtor to the creditor as an
accepted equivalent of the performance of
the obligation.
The debtor upon whom a garnishment order
is served can always deposit the money in
court by consignation, and thus relieve
himself of further liability
If the action of the attaching or garnishing
creditor fails, then garnishment is of no effect
since it is only incidental or accessory to the
main action.
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 the
obligee's will. (1166a)
Substitution of prestation the debtor of a
thing cannot compel the creditor to receive a
different one although the latter may be of
the same value than that which is due.
Except when stipulated by the parties
Such case, there may be a dation in payment
or novation
Waiver of defects defects of the thing
delivered may be waived by the creditor, if
expressly declared or with knowledge thereof,
he accepts the thing without protest or
disposes of it or consumes it.

Who must make the payment:

Payment must be made by the debtor who
must possess the following:
a. The free disposal of the thing due the
property should not be subject to any claim
by or encumbrances in favor of third persons.
b. Capacity to alienate the thing debtor must
be capable of giving consent.
If debtor does not have free disposal and
capacity to alienate, the payment shall not be
valid except in cases provided by law (1239).
If payment is made, the guardian of the
incapacitated person or the incapacitated
person himself (when he regains or attains
capacity) may seek annulment of payment.
In case the debtor does not have the free
disposal of the thing due, the injured party
may seek to recover payment.

Payment made by the debtor after court has

ordered him to retain the debt (art. 1243)
Payment made to the creditor by the
debtor after the debtor has been judicially
ordered to retain the debt shall not be
valid. The court order is known as
garnishment
Payment by a third person
The creditor is not bound to accept
payment or performance by a third
person except:
a. When there is stipulation to that effect
b. When the third person has an interest
in the fulfillment of the obligation such
as a guarantor or a co-debtor

Rights of a third person who makes the

payment
a. Payment with knowledge and consent of
the debtor
1. He can recover what he has paid
(1236)
2. He is entitled to be subrogated in the
rights of the creditor such as those
arising from mortgage, guaranty or
penalty (art. 1237)
b. Payment without knowledge or against
the will of the debtor he can recover
only insofar as the payment has been
beneficial to the debtor. He is not entitled
to subrogation

Payment by a third person who does not want

to be reimbursed
a. The payment shall be deemed to be a
donation which requires the debtors
consent (1238)
b. If debtor does not consent, the payment
shall still be valid to the creditor who has
accepted it. In such a case, the third
person can only recover insofar as the
payment has been beneficial to the
debtor, he is also not entitled to
subrogation. (1236 and 1237)

To whom shall payment be made

1. To the creditor (person in whose favor the
obligation has been constituted)
2. To the creditors successors-in-interest, such
as heirs or assigns
3. To any person authorized to receive payment
Payment to an incapacitated creditor
The creditor must be capacitated to receive
payment. If he is incapacitated, payment is not
valid. Except in the following cases:
a. If has kept the thing delivered
b. Insofar as the payment has been beneficial to
him
Payment to an unauthorized 3rd person
Gr: Payment not valid
Except:
a. If payment has redounded to the benefit
of the creditor, w/c benefit need not to be
proved in the ff:
1. If after payment, the third person
acquires the creditors rights
2. If the creditor ratifies the payment to
the third person

3. If by the creditors conduct, the debtor

has been led to believe that the third
person had authority to receive
payment
b. If the payment is made in good faith to ta
third person in possession of the credit.
(1242) the third person should be both in
possession of the instrument and the
credit
Where payment must be made
1. If stipulated, then place designated
2. If no stipulation
a. If obligation is to give a determinate
thing, wherever the thing might be at the
time of the obligation was constituted
b. If obligation is to give a generic thing or to
do, hen at the domicile of the debtor
(1251)
Special Forms of Payment
1. Dation in payment
2. Application of payment
3. Payment by cession
4. Tender of payment and consignation

Dation in payment special form of

payment where the ownership of property is
transferred to his creditor pay a debt in
money

Article 1245. 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)
Dation in payment extinguishes obligation to
the extent of the value of the thing delivered.
Dation in payment Assignment
Both
are
substitute
forms
of
performance of an obligation
Does not involve Involves plurality
plurality
of of creditors
creditors nor the
whole
of
the
property of the
debtor
Does not suppose Cannot be made
a
situation
of by an insolvent
financial
difficulties, as it
may
be
made
even
by
an
insolvent
Merely involves a
change
of
the

object
Dation

Pledge
Personal property
is delivered
Presumption is in
favor of pledge
Involves a lesser
transmission
of
rights

Warranties of debtor DP is an onerous

contract of alienation, because object is given
in exchange of the credit
If creditor is evicted from the thing given in
dation in payment, the original obligation is
not revived; but he is entitled to recover as a
buyer for breach of the warranty against
eviction
Error in payment there can be no absolute
confusion or identity between sale and dation
in payment. If the debtor later proves he paid
by mistake, he can recover, not the price by
which the thing was apparently conveyed,
but the very thing itself, because the person
to whom it was delivered received it solely as
a creditor
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. Neither can the debtor deliver a
thing of inferior quality. The purpose of the
obligation and other circumstances shall be
taken into consideration. (1167a)
If there is disagreement as to the quality the
court should decide whether it complies with
the obligation, taking into consideration the
purpose and other circumstances of the
obligation
The creditor or debtor may waive the benfit
of this artice. The creditor may require a thing
of inferior of quality and debtor may deliver a
superior object, unless the price to be paid in
the latter case is dependent upon the 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)

Article 1248. Unless there is an express

stipulation to that effect, the creditor
cannot be compelled partially to receive
the prestations in which the obligation
consists. Neither may the debtor be
required to make partial payments.
However, 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 the liquidation of the latter.
(1169a)
Since the creditor cannot be compelled to
accept partial performance, unless otherwise
stipulated, the creditor who refuses to accept
partial prestations does not incur in delay or
mora accipiendi, except when there is abuse
of right or if good faith requires acceptance
This article does not apply to obligations
where there are several subjects or where the
various parties are bound under different
terms and conditions. Thus, in a joint
obligation, one debtor may offer to pay only
his share of the obligation, and the creditor
cannot refuse the partial payment.
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 in the currency
which is 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 the
abeyance. (1170)
Legal tender currency which in a given
jurisdiction can be used for payment of debts,
public and private and which cannot be
refused by the creditor
So long as the notes were legal tender at the
time they were paid or delivered, the person
accepting them must suffer the loss if
thereafter they became valueless
Where such money or currency was
deposited with a bank or other person, the
deposit must be considered as one with

specification of currency, without the

necessity of stating so, unless there is
evidence to the contrary. When such currency
became valueless, the depositor suffered the
loss
The indemnity to be allowed should be
expressed in Philippine currency at the rate of
exchange at the time of judgment rather at
the rate prevailing on the date of the
defendants breach.
The delivery of notes or other commercial
instrument shall produce the effects of
payment only when they are collected, is
applicable, not only to those instruments
executed by third persons and delivered by
the debtor himself and
delivered to the
creditor.
Upon non-payment of such note, the creditor
may sue upon the original contract, as to
which the action still subsists notwithstanding
the delivery of the note
Payment by check may be validly refused by
the creditor, even if such check may be good.
Such rule applies even when payment is
made to the court
An offer of the check in payment is not a valid
tender of payment
Loss of value applicable only to instruments
executed by third persons and delivered by
the debtor to the creditor, and does not apply
to instruments executed by the debtor
himself and delivered to the creditor

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)
Extraordinary inflation/deflation is unusual or
beyond the common fluctuations in the value
of the currency
To determine payment when there has been
great fluctuation in the value of the currency,
considering the circumstances to each
particular case, to the principle of good faith
in Art. 1315 under which to contracts are
bound not only to the fulfillment of what has
been expressly stipulated, but also to all the
consequences which according to their nature
may be in keeping with good faith, usage and
law
When the currency is devalued in terms
beyond what could have been reasonably

foreseen by the parties, the doctrine of

unforeseen risk can be applied and the
effects of the devaluation should not be
borne by the creditor alone.
The revaluation of the credit must be made
according to the principles of good faith and
circumstances of the case and intent of the
parties.
The fair and just rule to apply is, for the
debtor to pay the actual value or worth of the
loan at the time it was contracted in the
currency in existence at the time of payment
Article 1251. Payment shall be made in the
place designated in the obligation.
There 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.
These provisions are without prejudice to
venue under the Rules of Court. (1171a)
In the absence of stipulation, performance
must be made at the place where the thing
was located at the time the obligation was
constituted. Such rule apply to obligation to
do and to some determinate thing
Even if the thing is determinate but its
existence at the place where it was when the
obligation was constituted was temporary,
the performance must be at the domicile of
the debtor, unless otherwise provided
If the creditor incurs expenses in going to the
domicile of the debtor, he should bear the
expenses because the debtor cannot be
made to shoulder the expenses since the law
fixes the place of payment which is at the
domicile of the debtor.
But if the debtor changes his domicile in bad
faith or after he has incurred delay, then
additional expenses shall be borne by him
It is only the additional expenses that are
charged against him. This implies that where
he has not transferred his domicile in bad
faith or where he transferred before default
he is not liable for the expenses.

Art. 1247 does not apply to the creditors

expenses to collect at the debtors domicile

SUBSECTION 1. Application of Payments

Article 1252. 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 same
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 yet 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 invalidating the contract. (1172a)
In order for that the rules for application may
be applied, it is necessary that the
obligations must all be due. Not only in case
of mutual agreement or consent of the party
in whose favor term was established, that
payments may be applied to obligations
which have not yet matured.
It is also necessary that the debts are of the
same kind generally of a monetary character.
This includes obligations which were not
originally of a monetary character, but, at the
time ok application of payment, had been
converted into an obligation to pay damages
by reason of breach or non-performance
The law grants to the debtor a preferential
right to choose the debt to which his payment
is to be applied because under equal
circumstances the law favors the debtor.
But the right of the debtor is not absolute. He
cannot impair the rights granted by law to
the creditor.
The right to select the obligation to which a
payment is to be applied must be exercised
at the time when the debt is paid, and after
the debtor has exercised it by indicating the
debt to which his payment should be applied,
he cannot later claim that it should be
understood as applied to another debt
If debtor makes a proper application of
payment, but creditor refuses to accept it
because he wants to apply it to another debt,
such creditor will incur in delay

 If at the time of payment, the debtor does not

exercise his right to apply it to any of his
debts, the application shall be understood as
provided as provided by law, unless creditor
makes the application and his decision is
accepted by the debtor
This application of payment can be made by
the creditor only in the receipt issued at the
time of payment
Once the debtor has accepted the application
made by the creditor, the former cannot
contest such application. It can only be
changed by mutual agreement
But an application made by creditor without
knowledge and consent of debtor is not
binding upon the latter
The debtor may contest if there is a cause for
invalidating the contract
Application of law is based on 1253 and 1254
The debtor and creditor, by agreement, can
validly change the application of payment
already made, without prejudice to the rights
of third persons acquired before such
agreement
Article 1253. If the debt produces interest,
payment of the principal shall not be
deemed to have been made until the
interests have been covered. (1173)
Article 1254. When the payment cannot be
applied in accordance with the preceding
rules, or if application can not 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)
Partial payments are to be applied first on
account of the interest and then to reduce
the principal
Interest in this article applies only to
compensatory interest or that stipulated as
earnings of the amount due under the
obligation, but not to interest due because of
delay or mora on the part of the debtor
Interest from delay is not part of the
obligation but is an independent liability
arising from non-performance

There should be no distinction between

interest from delay and compensatory
interest
In making an application of payments, the
law considers particularly the interest of the
debtor, as if the debtor himself were making
the application
Application of Payment
It is the designation of the debt to which
payment shall be applied when the debtor
owe several debts in favor of the same
creditor (1252)
Requisite:
a. There must be two or more debts
b. The debts must be of the same kind
c. The debts are owed by the same debtor
to the same creditor
d. All debts are due except:
i.
When the parties have stipulated
that payment may be applied to a
debt not yet due or
ii.
When the application is made by
the party for whose benefit the
term has been constituted
How application is made
a. Debtor who is given the preferential right to
apply the payment designates the debt to be
paid
b. If the debtor does not make the designation,
the creditor makes it by indicating the debt
being paid in his receipt. If the debtor accepts
the receipt from the creditor, the debtor
cannot complaint unless there is a just cause
of invalidating the contract
c. If neither the debtor nor creditor makes the
designation, or application cannot be inferred
from the circumstances, payment hall be
applied by operations of law as follows:
1. Payment shall be applied to the debt,
among those due, which is the most
onerous to the debtor.
2. If the debts are of the same nature and
burden, payment shall be applied to all
due debts proportionately
In all instances, if the debt produces interest,
payment of the principal shall not be deemed
to have been made until the interests have
been covered
SUBSECTION 2. Payment by Cession
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)
The assignment or cession contemplated by
this article is the abandonment of the
universality of the property of the debtor for
the benefit of his creditors in order that such
property may be applied to the payment of
the credits
Abandonment or assignment by the debtor of
all his property in favor of his creditors so
that the latter may sell them and recover
their claims out of the credits
A voluntary assignment cannot be imposed
upon a creditor who is not willing to accept it.
Such assignment does not have the effect of
making the creditors the owners of the
property of the debtor, unless there is an
agreement to that effect
The assignment gives the creditors the right
to proceed to the sale of the property, and to
pay themselves in the amount which the
proceeds of the sale permit and in the
manner agreed upon.
The unpaid amount remains due and
demandable
Assignment cannot include family home
which is reserved for certain beneficiaries but
can include other properties exempt from
execution, if the debtor waives the exemption
Payment
by
cession
Only
the
possession
and
administration are
transferred to the
creditors with an
authorization
to
convert
the
property into cash
with which the
debts shall be paid
Only extinguishes
the credits to the
extent
of
the
amount
realize
from
the
properties
assigned,
unless

Dation in payment
Transfer
of
ownership over the
thing alienated to
the creditor

May
totally
extinguish
the
obligation
and
release the debtor

otherwise agreed
upon
Involves all the
property

Cession of only
some
specific
thing
There are various There is only in
creditor
favor
of
one
creditor
SUBSECTION 3. Tender of Payment and
Consignation
Article 1256. If the creditor to whom tender
of payment has been made refuses without
just cause to accept it, the debtor shall be
released
from
responsibility
by
the
consignation of the thing or sum due.
Consignation alone shall produce the same
effect in the following cases:
(1) When the creditor is absent or
unknown, or does not appear at the place
of payment;
(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to
give a receipt;
(4) When two or more persons claim the
same right to collect;
(5) When the title of the obligation has
been lost. (1176a)
Article 1257. In order that the consignation
of the thing due may release the obligor, it
must first be 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)
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)
After this notice, the creditor may:
a. Accept the thing or amount deposited, in
which case the matter or payment is
terminated or

b. Refuse to accept the thing or amount, in

which case a trial must be held to
determinate
the
validity
of
the
consignation
c. The creditor may ask the court to cancel
the obligation after showing that the
requisites of consignation have been
complied
Article 1259. The expenses of consignation,
when properly made, shall be charged
against the creditor. (1179)
Article 1260. Once the consignation has
been duly made, the debtor may ask the
judge to order the cancellation of the
obligation.
Before the creditor has accepted the
consignation,
or
before
a
judicial
declaration that the consignation has been
properly made, the debtor may withdraw
the thing or the sum deposited, allowing
the obligation to remain in force. (1180)
Article 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. (1181a)
Tender of payment manifestation made by
the debtor to the creditor of his desire to
comply with his obligation, with the offer of
immediate performance
Consignation deposit of the object of the
obligation in a competent court in accordance
with the rules prescribed by law, after tender
of payment has been refused or because of
circumstances which render direct payment
to the creditor impossible or inadvisable
Tender of payment is preparatory act which
precedes consignation. It does not cause the
extinguishment of the obligation, unless
contemplated by consignation. It is the
consignation which constitutes a form of
payment
Tender of payment by certified check is valid
if the creditor makes no prompt objection, but
this does not estop the latter from later
demanding payment in cash
Tender of payment only part of the obligation,
when the contract calls for full payment of
the balance due upon default of an
installment, may be validly refused

When tender f payment is made, the accrual

of interest is suspended from the date of such
tender
Requisites:
a. There was debt due
b. Consignation of the obligation was made
because of some legal cause provided in art.
1256
c. Previous notice of the consignation has been
given to the persons interested in the
performance of the obligation
d. The amount or thing due was placed that the
disposal of the court
e. After the consignation had been made, the
persons interested were notified thereof
For consignation be valid, the creditor must
have refused without just cause to accept
payment, or that there be some other legal
cause. Mere consignation without one of
these causes do not produce the effect of
releasing the debtor
Unjust refusal by the creditor, it must be shown
that:
a. There was previous tender of payment,
without which the consignation is ineffective
b. The tender of payment was of the very thing
due, or in case of money obligation, that legal
tender currency was offered
c. The tender of payment was unconditional
d. The creditor refused to accept payment
without just cause
Debtors right to withdraw the sum or thing
consigned
a. Before acceptance by the creditor of the
consignation or the declaration by the
judge that the consignation has been
properly made the debtor may withdraw
the sum or thing consigned as a matter of
right. Such withdrawal produces the
following effects:
1. Obligation shall remain in force
2. Co-debtors, guarantors and sureties
are not released
b. After acceptance by the creditor of the
consignation or declaration by the judge
that the consignation has been properly
made the debtor may withdraw only
with the consent of the creditor. Such
withdrawal will produce the following
effects:
1. Obligation shall be revived

2. Creditor shall lose every preference

which he may have over the thing
3. Guarantors and sureties are released
unless they consented. If there are
several debtors and their obligation is
solidary, such obligation will become a
joint obligation
Consignation, without previous tender of
payment, will produce the same effect:
a. When the creditor is absent or unknown or
does not appear at the place of payment
b. When he is incapacitated to receive payment
at the time it is due
c. When, without just cause, he refuses to give
a receipt
d. When two or more persons claim the same
right to collect

e. When the title of the obligation has been lost

Effects of Consignation
a. Debtor is released in the same manner as if
he had performed the obligation at the time
of the consignation, because this produces
the same effect as a valid payment
b. Accrual if interest is suspended
c. Deteriorations or loss of thing or amount
consigned without fault of debtor must be
borne by creditor, because the risk of the
thing are transferred to creditor from the
moment of deposit
d. Any increment or increase in value of the
thing after the consignation inures to the
benefit of the creditor