EXTINGUISHMENT OF OBLIGATIONS *A person who pays a PRE-EXISTING

obligation. If no such obligation exists,

Art. 1231. – Obligations are strictly speaking, there is no payment.
extinguished:
(1) By payment or E.g.
performance; A was given the option to buy a car or
(2) By loss of the thing due; not, within one week. Here, A has no duty
(3) By the condonation or to buy. But if he decides to buy, an
remission of the debt; obligation is created and he must pay.
(4) By the confusion or (Asturias Central vs Pure Cane Molasses
merger of the rights of creditor Co., 60 Phil 259)
and debtor;
(5) By compensation; *For payment to properly exist, the
(6) By novation. creditor has to accept the same,
expressly or implicitly. Payment, for valid
Other causes of extinguishment of reasons, may properly be rejected.
obligations, such as annulment,
rescission, fulfillment of a resolutory EFFECT OF PAYMENT MADE UNDER A
condition, and prescription are VOID JUDGMENT
governed elsewhere in this Code. If the judgment upon which the
aggrieved party made payment is null
OTHER CAUSES OF EXTINGUISHMENT OF and void, the payment made thereunder
OBLIGATIONS: is also null and void.
1. Death of a party in case of personal
obligation (1311, NCC) RECEIPT vs VOUCHER
2. Mutual desistance or withdrawal of RECEIPT – is a written and signed
parties acknowledgement that money has or
3. Arrival of resolutory period (1193, goods have been delivered. Best
NCC) evidence of fact of payment is receipt of
FEU-IABF OBLICON SEM2, 2019-2020

4. Compromise agreements (2028, payment.

NCC)
5. Impossibility of fulfillment (1266, VOUCHER – Documentary record of a
NCC) business transaction. The references to
6. Happening of fortuitous event alleged check payments in the vouchers
(1174, NCC) presented do not vest them with the
character of receipts. Voucher is not
Compromise agreements – are necessarily an evidence of payment.
contracts whereby the parties undertake
reciprocal obligations to resolve their REQUISITES OF PAYMENT:
differences thus avoiding litigation, or put 1. The very thing or service
an end to one already commenced. It is contemplated must be paid
based on reciprocal concessions. 2. Fulfillment must be complete.
(Ramos vs Ledesma, 12 Phil 656)
Section 1 – Payment or Performance
Art. 1233. – A debt shall not be
Art. 1232. – Payment means not only understood to have been paid
the delivery of money but also the unless the thing or service in which
performance, in any other manner, the obligation consists has been
of an obligation. completely delivered or rendered, as
the case may be.
Payment – that mode of extinguishing
obligations which consists of: (a) the HOW PAYMENT OR PERFORMANCE IS
delivery of money; or (b) the MADE?
performance in any other manner of an 1. If the debt is a MONETARY
obligation. OBLIGATION, by delivery of the
money. The amount paid must be

Page | 1
 full, unless of course otherwise General Rule: PRINCIPLE OF INTEGRITY –
stipulated in the contract. A debt shall not be understood to have
been paid unless the thing or service in
(The term “indebtedness” has been which the obligation consists has been
defined as an unconditional and completely delivered or rendered, as the
legally enforceable obligation for case may be.
the payment of money. (CIR vs
Prieto, L-13912, Sept 30, 1960) EXCEPTIONS:
1. If the obligation has been
2. If the debt is the DELIVERY OF A substantially performed in good
THING, by delivery of the thing/s. faith, the obligor may recover as
though there had been a strict and
3. If the debt is the DOING OF A complete fulfillment, less damages
PERSONAL UNDERTAKING, by the suffered by the obligee. (1234,
performance of said personal NCC)
undertaking.
E.g.
4. If the debt is NOT DOING of In their contract, X obliged himself to
something, by refraining from manufacture and deliver 10 chairs for Y
doing the action. at P1,000 per chair. However, due to lack
of lumber because of the recent super
typhoon, X only manufactured eight (8)
BURDEN OF PROOF chairs and delivered it to Y. In this case,
An alleged creditor has the burden of X is presumed to be in good faith; hence,
showing that a valid debt exists. Once he he can recover P8,000 [P10,000 (P1,000
does this, the debtor has the burden of x 10) – P2,000 (P1,000 x 2)] only.
proving that he has paid the same.
(Lopez vs Tan Tioco, 8 Phil 693). Thus, if Substantial performance doctrine –
a promissory note is still in a creditor’s The rule that is a good faith attempts to
FEU-IABF OBLICON SEM2, 2019-2020

possession, the presumption is that it has perform does not precisely meet the
not yet been paid. (Bantug vs del terms of an agreement or statutory
Rosario, 11 Phil 511) requirements, the performance will still
be considered complete if the essential
Question: Is a testimony sufficient to purpose is accomplished, subject to claim
establish or prove the fact that the whole for damages for the shortfall. (Black’s
debt had been paid? Law Dictionary)

A: No, a testimony does not constitute Substantial performance or compliance

sufficient proof that the entire debt has is, in a sense, a performance according
been paid. (Javier vs Brinas (CA, 40 OG to the fair intent of the contract, with an
4th Supp No. 8, p. 279) attempt in good faith to perform. Fair
dealing and equity demand a faithful
Art. 1234. If the obligation has been compliance of one’s contractual
substantially performed in good obligations. (Rosete, et al. vs Perober
faith, the obligor may recover as Dev Corp, CA-GR 61032-R, Jul 31, 1981)
though there has been strict and
complete fulfillment, less damages 2. When the obligee accepts the
suffered by the obligee. performance, knowing its
incompleteness or irregularity, and
Art. 1235. – When the obligee without expressing any protest or
accepts the performance, knowing objection, the obligation is deemed
its incompleteness or irregularity, fully complied with. (1235, NCC)
and without expressing any protest
or objection, the obligation is E.g.
deemed fully complied with. In their contract of sale, X obliged himself
to deliver 10 tables to Y at P1,000 per
table. Thereafter, X delivered nine (9)
Page | 2
tables and was accepted by Y with even a joint debtor). (Monte de
knowledge that is incomplete. Y paid Piedad vs Rodrigo, 63 Phil 312)
P9,000. The obligation of X is
extinguished. Third person may pay:
1. With the knowledge and consent of
E.g. the debtor. Here, the payor is
The buyer failed to pay the entitled to reimbursement and
downpayment on time. But the seller still subrogration to such rights as
accepted without objections, the delayed guaranty, penalty clause, or
payment of the buyer. The obligation of mortgage.
the buyer is deemed complied with under
Art 1235. (Arra Realty Corporation, et al. 2. Without the debtor’s knowledge or
vs Guarantee Development Corporation, against his will. Here, the payor is
et al., GR No. 142310, Sept 20, 2004) NOT entitled to subrogration;
moreover, he is allowed only
Accept – to take as satisfactory or BENEFICIAL REIMBURSEMENT.
sufficient, or agree to an incomplete or
irregular performance. (Constante Amor E.g.
de Castro vs CA, GR No. 115838, Jul 18, If X pays for Y’s transportation fare,
2002) without Y’s knowledge, or against Y’s will,
and later discovers that Y was entitled to
Qualified acceptance – There is a half fare, X can recover only said half
possibility or objection can be made. faire, even if he had paid the full fare.
Hence, there is what is called qualified This is clearly the fault of X.
acceptance of incomplete or irregular
payment. Mere receipt of partial payment In this example, can X recover Y’s half
is not equivalent to the required fare from the creditor?
acceptance of performance as would
extinguish the obligation. No. This is not solutio indebiti (for said
FEU-IABF OBLICON SEM2, 2019-2020

half fare was really due). X’s right is

Reason for Article 1235: Presence of against Y, the debtor, for said half fare.
waiver and estoppel. (Bank of P.I. vs Trinidad, 42 Phil 223) The
remaining half fare which was NOT even
Art. 1236. – The creditor is not due the creditor, is of course undue
bound to accept payment or payment or solutio indebiti and may
performance by a third person who properly be recovered from the creditor.
has no interest in the fulfillment of
the obligation, unless there is a OTHER INSTANCES WHEN RECOVERY
stipulation to the contrary. CAN BE HAD FROM THE CREDITOR AND
NOT FROM THE INNOCENT DEBTOR:
Whoever pays for another may 1. When debt had prescribed
demand from the debtor what he 2. When debt had been completely
has paid, except that if he paid remitted
without the knowledge or against 3. When debt has already been paid
the will of the debtor, he can 4. When legal compensation had
recover only insofar as the payment already taken place.
has been beneficial to the debtor. E.g.
A owes B P1M. Later, A paid B P700k,
RIGHT OF CREDITOR TO REFUSE leaving a balance of P300k. C, a suitor of
PAYMENT BY THIRD PERSONS: A, and intending to impress A, paid B the
Creditor can refuse payment by a sum of P1M thinking that A still owed B
stranger (3rd person), EXCEPT: that amount. He did this without
1. If there is a stipulation allowing knowledge of A. How much can C recover
this; or from A?
2. If said third person has an interest
in the fulfillment of the obligation A: C can recover only P300k from A
(like a co-debtor, guarantor, or because it is only up to this amount that
Page | 3
A has been benefitted. C can recover the A borrowed P1M from B. The loan was
remaining P700k from B who should not secured by a mortgage of A’s land in
have accepted complete payment for a favor of B. WITHOUT the knowledge of A,
debt already partially paid. If B C paid B the sum of P1M for A’s debt. A
incidentally is in bad faith, B is benefitted in the amount of P1M.
responsible not only for the return of the
P700 but also for the interest in lieu of Q1: May C claim reimbursement from A?
damages. Q2: If so, how much?
Q3: If A cannot pay, may C foreclose the
Q: in the preceding problem, suppose the mortgage on A’s land?
payment by C had been made against
the will of A, would your answer be the A1: Yes, C can claim reimbursement from
same? A inasmuch as C paid A’s debt.

A: Yes. Same. The law makes no A2: C can recover the whole amount of
distinction as to the right of recovery in P1M inasmuch as the problem states that
the case of payment by a stranger was A benefitted up to the amount of P1M.
made either without the knowledge or
against the consent of the debtor. In both A3: If A cannot pay, C cannot foreclose
cases, the paying stranger can recover the mortgage on A’s land. It is true that
only insofar as the payment has been the original creditor B had the right to
beneficial to the debtor. (1236, NCC) foreclose in case of non-payment. But in
this case, the new creditor C had not
Art. 1237. – Whoever pays on behalf been subrogated in the rights of B,
of the debtor without the knowledge inasmuch as C paid without the
or against the will of the latter, knowledge of A. The only right of C
cannot compel the creditor to therefore is not reimbursement up to the
subrogate him in his rights, such as amount A had benefited, but NOT the
those arising from a mortgage, right of subrogration.
FEU-IABF OBLICON SEM2, 2019-2020

guaranty, or penalty.
E.g.
No subrogation exists. One who pays A owes B the sum of P1M. C is the
without knowledge of the debtor has no guarantor of A. A was able to pay B the
right to subrogation. sum of P400k. Therefore, P600k still
remains unpaid. D, thinking that A still
Subrogation – the act of putting owed B P1M paid P1M to B, against the
somebody into the shoes of the creditor, will of A.
hence, enabling the former to exercise all
the rights and actions that could have Q1: May D recover from A?
been exercised by the latter. Q2: If so, how much?
Q3: If A cannot pay, may D proceed
The law says, “Subrogation transfers to against the guarantor C?
the person subrogated the credit with all Q4: Suppose D pays B with the express
the rights thereto appertaining, either or implied consent of A, what are the
against the debtor or against third rights of D?
persons, be they guarantors or
possessors of mortgages, subject to A1: Yes, D may recover from A.
stipulation in a conventional
subrogation.” (1303, NCC) A2: D can recover only P600k because
this is the only amount which benefitted
RIGHTS WHICH MAY BE EXERCISED BY THE A. Remember that previously, P400k had
PERSON SUBROGATED IN THE PLACE OF been paid, leaving a balance of P600k
THE CREDITOR: only.
1. Mortgage
2. Guaranty A3: If A cannot pay D, D cannot ordinarily
3. Penalty or penal clause proceed against the guarantor C because
E.g.
Page | 4
D, having paid against the will of A, is not
entitled to subrogation. Q1: Is the obligation of X extinguished?

A4: D would be entitled not merely to full Q2: If X did not consent, but Z still paid
reimbursement but also to subrogation, the obligation of X without an intention to
or the right to bring actions against the be reimbursed, may Z still recover from
debtor as mortgagee or against third X?
persons.
A1: Yes, the obligation of X is
Art. 1302 of the Civil Code States that “It extinguished. Payment is valid. There is
is presumed that there is legal also no right to reimburse Z because
subrogation xxx (2) when a third person, there is lack of intention to be
not interested in the obligation, pays with reimbursed. (Art 1238)
the express or tacit approval of the
debtor.” A2: Yes, Z may still recover from X
because there is no consent on the part
SUBROGATION vs REIMBURSEMENT of X. Under Art. 1238, even if the
Subrogation Reimbursement stranger does not intend to be
Recourse can be No such recourse reimbursed, debtor’s consent is required
had to the for the payment by a stranger to be
mortgage or deemed as a donation; thus, not giving
guarantee or rise to a right to be reimbursed. Absent
pledge consent, the obligation to reimburse
stranger is not disposed of. All that can
Debt is New creditor has be recovered by Z is the extent that X
extinguished in different rights, so has benefitted. With regard to the
one sense, but a it is if there has payment by Z to Y is concerned, the
new creditor, with indeed been an FEU-IABF OBLICON SEM2, 2019-2020
same is valid.
exactly the same extinguished of
rights as the old the obligation. Art. 1239. – In obligations to give,
one appears on payment made by one who does not
the scene have the free disposal of the thing
due and capacity to alienate it shall
There is There is only not be valid, without prejudice to
something more personal action to the provisions of Article 1427 under
than a personal recover the the Title on “Natural Obligations.”
action of recovery amount
PAYMENT BY INCAPACITATED PERSON
GR: If person paying has no capacity to
Art. 1238 – Payments made by a give:
third person who does not intend to a. Payment is not valid – if accepted
be reimbursed by the debtor is b. Creditor cannot even be compelled
deemed to be a donation, which to accept it
requires the debtor’s consent. But c. Remedy of consignation would not
the payment is in any case valid as be proper
to the creditor who has accepted it.
EXCEPTION:
Reason why debtor has to consent – No Art 1427 – When a minor xxx who has
one should be compelled to accept the entered into a contract without the
generosity of another. consent of the parents or guardian
voluntarily pays a sum of money or
E.g. delivers a fungible thing in fulfillment of
Z, a classmate of X, paid the latter’s the obligation, there shall be no right to
obligation to Y in the amount of P3,000. Z recover the same from the obligee who
intends that the payment will be his gift has spent or consumed it IN GOOD
to X by virtue of the latter’s birthday two FAITH.
days ago. X consented to this donation.
Page | 5
EXCEPTION TO THE EXCEPTION: (Paras) FACTS: Rodriguez owed the company a
Art. 1241 (by analogy) certain amount of money. A certain
Montelibano approached Rodriguez and
E.g. claimed that he (Montelibano) was duly
A, a minor, entered into a contract authorized to receive payment for the
without the consent of his parents. In company. Without making any
said contract, A was supposed to pay B verification, Rodriguez paid Montelibano.
the sum of P1M. B did not know of A’s Later, the company sued Rodriguez for
minority, and when A voluntarily paid him payment of debt. Rodriguez presented
the money, B accepted the sum. Out of the defense that he had already paid his
this amount, B spent P800k. Later, the debt to Montelibano who was not
parents of A learned of the transaction, authorized to receive payment.
and brought an action in court to recover
the P1M paid to B. How much can the ISSUE: Should Rodriguez still pay his debt
parents recover from B? to the company?

ANS: The parents can recover only P200k HELD: Yes. Rodriguez’s payment to
since P800k had already been spent in Montelibano was not valid because
good faith. Montelibano was not duly authorized to
receive such payment. Payment to an
NOTE: Art. 1239 refers to payment by an unauthorized agent is at risk of the
incapacitated person, Art. 1241 refers to payor. Rodriguez should have made a
payment to an incapacitated person. proper verification.

Art. 1240. – Payment shall be made *Payment made by the debtor to a wrong
to the person in whose favor the party does not extinguish the obligation
obligation has been constituted, or as to the creditor, if there is no fault or
his successor in interest, or any negligence which can be imputed to the
person authorized to receive it. latter. Even when the debtor acted in
FEU-IABF OBLICON SEM2, 2019-2020

utmost good faith and by mistake as to

TO WHOM PAYMENT MUST BE MADE the person of his creditor, or through
1. To the person in whose favor the error induced by the fraud of a third
obligation has been constituted person, the payment to one who is not in
(the creditor) fact his creditor, or authorized to receive
- This refers to the creditors at such payment is void, except as provided
the time of payment, not the in Article 1241. Such payment does not
original creditor at the time the prejudice the creditor, and accrual of
obligation was constituted. interest is not suspended by it. (Allied
Banking Corp vs Lim Sio Wan, et al., GR
2. To the successor-in-interest (like No. 133179, Mar 27, 2008)
heirs)
Art. 1241. – Payment to a person
3. To any person authorized to who is incapacitated to administer
receive it. his property shall be valid if he has
- Authorization may be by kept the thing delivered, or insofar
agreement or by law as the payment has been beneficial
- If the recipient was not to him.
authorized, the payment
generally is NOT valid, without Payment made to a third person
prejudice to Art. 1241. (Keeler shall also be valid insofar as it has
Electric Co vs Rodriguez, 44 Phil redounded to the benefit of the
19) creditor. Such benefit to the creditor
need not be proved in the following
Harry E. Keeler Electric Co. vs cases:
Rodriguez
44 Phil 19

Page | 6
 (1) If after the payment, the the only amount which B really
third person acquires the benefitted from A’s payment to him. A’s
creditor’s rights; payment is thus valid only insofar as the
payment has benefitted the
(2) If the creditor ratifies the incapacitated payee.
payment to the third person;
Q4: Who has the burden of proving that
(3) If by the creditor’s the payment has benefitted the
conduct, the debtor has been incapacitated payee?
led to believe that the third
person had authority to receive A4: The one who made the payment has
the payment. the burden of proving that it benefitted
the incapacitated payee. (Panganiban vs
*First paragraph deals with payment to Cuevas, 7 Phil 477). The benefit may be
an INCAPACITATED person. Second financial, moral or intellectual but it must
paragraph deals with payment to an be proved.
UNAUTHORIZED third person.
Q5: In proving that the incapacitated
Generally, payment to an incapacitated payee really benefitted from the
person is not valid. However, payment to payment, is it necessary for the payor to
a third person who is incapacitated to prove that the payee invested the thing
administer his property shall be valid if or money delivered in some profitable
he has kept the thing delivered, or enterprise?
insofar as the payment has been
beneficial to him. A5: No, proof of investment is not
necessary. All that is needed is proof that
FIRST PARAGRAPH payment to the incapacitated payee has
Q1: Is payment to a third person in some way or another redounded to the
incapacitated to manage or administer benefit of the payee. Example is when
FEU-IABF OBLICON SEM2, 2019-2020

his property valid? the money was used for proper hospital
or psychiatric expenses.
A1: Generally, not valid, EXCEPT:
a. If the incapacitated person has Q6: If indeed there has been no benefit,
kept the thing delivered, or what is the remedy?
b. Insofar as the payment has been
beneficial to him. A6: The payment is not valid; therefore,
the legal representative of the
Q2: A owes B P1M. When A paid B, the incapacitated person can demand a new
latter was already insane. However, the payment on behalf of his war. The ward
money was never spent, and is still in the himself, should he regain capacity, is
possession of B. Is A’s obligation allowed to claim a new payment.
extinguished?
SECOND PARAGRAPH
A2: Yes, A’s obligation is already Payment is valid BUT only to the extent
extinguished by virtue of A’s payment to of benefit (financial, moral or intellectual)
B. True, B was incapacitated to to the creditor. The payment must be
administer his own property, yet B has proved, and is therefore, not presumed
kept the thing delivered. Hence, A’s except in the three instances provided
payment is valid. for in the second paragraph of Art. 1241.

Q3: In Q2, suppose that the swindler had Benefit to the creditor is presumed in the
asked B for P1M in exchange for a ring following cases:
worth P600k, does A’s payment to B 1. SUBROGATION – If after payment,
remain valid? the third person acquires the
creditor’s rights
A3: A’s payment to B remains valid only E.g.
up to the extent of P400k because this is
Page | 7
An impostor-agent after payment to him 2. X, a presumed heir, entered upon
becomes the owners of the company- an inheritance, collected the
creditor. credits of the estate, but was later
declared by the court to be
2. RATIFICATION – If the creditor incapacitated to inherit. Here,
ratifies the payment to third person payment of the credit to X
extinguished the obligation.
E.g.
If the MERALCO, a few days after its Art. 1243. – Payment made to the
unauthorized collector had collected from creditor by the debtor after the
you, tells you that the payment to him is latter has been judicially ordered to
alright, Here, the defect is cured. retain the debt shall not be valid.

3. ESTOPPEL – If by the creditor’s EXAMPLES OF JUDICIAL ORDER:

conduct, the debtor has been led to 1. Preliminary attachment of final
make the payment. attachment
2. Preliminary injunction or final
E.g. When the impostor-agent had been injunction
given by the MERALCO the usual uniform 3. Garnishment
for collectors.
*In case of violation of the abovestated
Art. 1242. – Payment made in good orders, payment is VOID.
faith to any person in possession of
the credit shall release the debtor. Preliminary attachment – provisional
remedy issued upon order of the court
Article 1242 is another exception to the where an order is pending to levy upon
general rule that payment to an the property of the defendant, the same
unauthorize person is not valid. to be held thereafter by the sheriff as
security for the satisfaction of whatever
FEU-IABF OBLICON SEM2, 2019-2020

REQUISITES: judgment might be secured in said action

1. Payment by payor must be made in by the attaching creditor against the
good faith (which is presumed) defendant.

2. Payee must be in possession of the Preliminary injunction – Order granted

credit itself, not merely the at any stage of an action or proceeding
document evidencing credit prior to the judgment or final order,
requiring a party or a court, agency or a
When one possesses the credit, person to refrain from a particular act.
there is colorable title to it.
Garnishment – A species of attachment
Examples of a person in possession of in which plaintiff seeks to subject his
credit: claims on properties of the debtor in the
1. X found a negotiable promissory hands of a stranger.
note payable to bearer. If the
maker thereof pays in good faith to Art. 1244. – The debtor of a thing
X, the debt is extinguished even if cannot compel the creditor to
X was not entitled to it. receive a different one, although the
latter may be of the same value as,
Q: What if the promissory note was or more valuable than that which is
payable to a specific person, Y, is the due.
payment to X valid?
In obligations to do or not to do, an
A: Not valid. X would just be the act or forbearance cannot be
possessor of the document, not the substituted by another act or
credit itself. forbearance against the obligee’s
will.

Page | 8
*Creditor cannot compel creditor to Debtor offers another thing to the
accept a different object. creditor who accepts it as
equivalent payment. Creditor must
E.g. consent.
A is obliged to give B a Jaguar car. Not
having any Jaguar car, A wants B to 2. Performance of the prestation in
accept a Rolls Royce, a more expensive lieu of payment (animo solvendi)
car, but B refuses to accept. Is B justified which may consist in the delivery
legally in refusing to accept? of a corporeal thing or a real right
or a credit against the third person;
A: Yes. Even if the Rolls Royce is more
valuable than the Jaguar, if B does not 3. Some difference between the
want the Rolls Royce, he cannot be prestation due and that which is
compelled by A to accept it. The terms of given in substitution (aliud pro alio)
the contract form the law between the
parties and the subject matter cannot be Example 1: To pay my debt of P1M in
changed without the consent of the favor of Bella, I gave her with her
parties. consent, a diamond ring instead worth
P1M.
Art. 1245. – Dation in payment,
whereby property is alienated to the Example 2: To pay off his debt, an heir
creditor in satisfaction of a debt in assigned his inheritance in an estate to
money, shall be governed by the law his creditor. (Ignacio vs Martinez, 33 Phil
on sales. 576)

Dation in payment – a special mode of Art. 1246. – When the obligation

extinguishing an obligation whereby the consists in the delivery of an
debtor alienates in favor of the creditor, indeterminate or generic thing,
property for the satisfaction of monetary whose quality and circumstances
FEU-IABF OBLICON SEM2, 2019-2020

debt. have not been stated, the creditor

cannot demand a thing of superior
- Can be considered an objective quality. Neither can the debtor
novation of the obligation with the deliver a thing of inferior quality.
common consent of the parties; thus, The purpose of the obligation and
extinguishing the obligation. other circumstances shall be taken
into consideration.
- In a sense, the understanding really
partakes a nature of sale, i.e., the OBLIGATION TO GIVE GENERIC THINGS
creditor is really buying the thing or Reason for the Article: This Article gives a
property of the debtor, payment for principle of equity in that it applies
which is to be charged against the justice in a case where there is lack of
debtor’s debt. As such, elements of a precise declaration in the obligation. It is
contract of sale must be present, always hard to find one thing that is
namely: (1) consent; (2) object exactly similar to another. But in this kind
certain; (3) cause or consideration. of obligation, there is the question of a
relative appreciation in that one party
- Also called, “dation in solutum” or appreciates the same thing as the other
“adjudicacion en pago.” party does. If there is disagreement
between them, then the court steps in
REQUISITES: and declares whether the contract has
1. Agreement between creditor and been complied with or not, according to
debtor that the obligation is the circumstances.
immediately extinguished by
reason of the performance of a E.g.
prestation different from that due; X obliged himself to deliver to Y a second
hand car, a 2010 model. In this case, X

Page | 9
must not deliver a 2005 model. Also, Y 2. Debt is partly liquidated and partly
cannot demand a 2014 model. unliquidated, in which case,
performance of the liquidated part
Art. 1247. – Unless it is otherwise may be insisted upon either by the
stipulated, the extrajudicial debtor or the creditor;
expenses required by the payment
shall be for the account of the E.g.
debtor. With regard to judicial costs, D owes C P3M plus damages. Even
the Rules of Court shall govern. if the amount of damages has not
yet been ascertained, the P3M is
GENERAL RULE: already known or liquidated. This is
Debtor has to pay for the extrajudicial already demandable and payable.
expenses incurred during the payment.
3. When the different prestations are
EXCEPTION: subject to different conditions or
When there is stipulation to the contrary. different terms;

JUDICIAL COSTS E.g.

Judicial costs are governed principally by A debt payable in installments
Rule 142 of the Rules of Court. They are
awarded to the winning litigant, but the 4. When a joint debtor pays his share
court may also adjudge that either party or the creditor demands the same.
shall pay the costs of an action or that This is a complete payment of his
the same be divided as may be share, but it is still a partial
equitable. fulfillment of the whole obligation.

Art. 1248. – Unless there is an 5. When a solidary debtor pays only

express stipulation to that effect, the part demandable because the
the creditor cannot be compelled rest are not yet demandable on
FEU-IABF OBLICON SEM2, 2019-2020

partially to receive the prestations account of their being subject to

in which the obligations consist. different terms and conditions.
Neither may the debtor be required
to make partial payments. 6. In case of compensation, when one
debt is larger than the other, it
However, when the debt is in part follows that a balance is left. (1290,
liquidated and in part unliquidated, NCC)
the creditor may demand and the
debtor may effect the payment of 7. When the work is to be done by
the former without waiting for the parts. (1720, NCC)
liquidation of the latter.
Art. 1249. – The payment of debts in
GENERAL RULE: Performance should be money shall be made in the currency
complete. stipulated, and if it is not possible to
deliver such currency, then in the
Under Art 1233, a debt shall not be currency which is legal tender in the
understood to have been paid unless the Philippines.
thing or service in which the obligation The delivery of promissory notes
consists has been completely delivered payable to order, or bills of
or rendered, as the case may be. Hence, exchange or other mercantile
partial performance is not allowed documents shall produce the effect
generally under Art. 1248. of payment only when they have
been cashed, or when through the
EXCEPTIONS (Partial performance, fault of the creditor they have been
allowed): impaired.
1. When there is stipulation to this
effect;

Page | 10
In the meantime, the action derived 7. Post-dated check – No
from the original obligations shall 8. Promissory note – No
be held in abeyance.

Legal tender – money (bills and coins) INSTANCES WHEN CHECK SHOULD BE
approved in a country for the payment of ACCEPTED AS PAYMENT:
debts, the purchase of goods, and other 1. When agreed upon
exchanges for value. (Black’s Law
Dictionary) 2. Creditor is in estoppel as when he
had previously promised he would
- That which a debtor may compel a accept a check
creditor to accept in payment of the
debt 3. Check has lost its value because of
the fault of creditor (1249, par2) as
LEGAL TENDER IN THE PHILIPPINES when he has unreasonably delayed
Pre-martial law – all notes and coins in presenting check for payment
issued by Central Bank without maximum (PNB vs Seeto, L-4338, Aug 13,
limit 1952), or when, in the case of a
foreign bill of exchange, the
Nov 29, 1972 to 2006 under Sec. 231 of creditor neglects to make a protest
PD 72: (Quiros vs Tan Guinlay, 5 Phil 675)
- 1 centavo & 5 centavo coins –
valid legal tender up to P20.00 4. When payment occurs not because
- Other coins (P1, P5, P10) up to of a debt but because of the
P50 exercise of a right of conventional
- All bills – valid for any amount redemption, since this is a right
and not a duty, particularly when
2006 to present under Sec. 52, RA 7653 the check is in fact deposited by
& BSP Circular No. 537, S-2006: the clerk of court with the bank,
FEU-IABF OBLICON SEM2, 2019-2020

- 1, 5, 10, 25 centavo coins – valid and the vendee a retro has

legal tender up to P100.00 petitioned the court that he be
- P1, P5, P10 coins – up to P1,000 allowed to withdraw the amount of
- All bills – valid for any amount the deposit. (Cordero vs Siosoco,
41 OG 4644)
A check is not legal tender and,
therefore, the creditor cannot be Art. 1250 – In case of an
compelled to accept payment thru this extraordinary inflation or deflation
means. (Belisario vs Natividad, 67 Phil of the currency stipulated should
648) supervene, the value of the currency
at the time of the establishment of
It must be emphasized, however, that the obligation shall be the basis of
this dictum does not prevent a creditor payment, unless there is an
from accepting a check as payment. In agreement to the contrary.
other words, the creditor has the option
and the discretion of refusing or Inflation – sharp sudden increase of
accepting it. (Far East Bank and Trust Co. money or credit or both without a
vs Diaz Realty, Inc., GR No. 138588, Aug corresponding increase in business
23, 2001) transaction. There is inflation when there
is an increase in the volume of money
Are the following legal tender? and credit relative to available goods,
1. US dollar – YES, if agreed upon resulting in a substantial and continuing
2. British pound – YES, if agreed upon rise in the general price level. (Equitable
3. Philippine Peso – YES PCI Bank, et al. vs Ng Sheung Ngor, et
4. Gold bars – No al., GR No. 171545, Dec 19, 2007)
5. Check – No, unless encashed
6. Manager’s check – No, unless Extraordinary inflation – unusual
encashed decrease in the purchasing power of
Page | 11
currency (i.e., beyond the common ISSUE: Whether or not, FPFC can validly
fluctuation in the value of the currency) ask for adjustment of judgment award
and such decrease could not be based on inflation.
reasonably foreseen or was manifestly
beyond the contemplation of the parties HELD:
at the time of the obligation. No, adjustment cannot be granted.

Extraordinary deflation – opposite of Art. 1250, NCC provides that “in case of
extraordinary inflation an extraordinary inflation or deflation of
the currency stipulated should
REQUISITES OF EXTRAORDINARY supervene, the value of the currency at
INFLATION/ DEFLATION: the time of the establishment of the
1. An official declaration of obligation shall be the basis of payment,
extraordinary inflation or deflation unless there is an agreement to the
by the BSP; contrary xxx.”
2. Obligation was contractual in
nature; and Extraordinary inflation exists "when there
3. Parties expressly agreed to is a decrease or increase in the
consider the effects of the purchasing power of the Philippine
extraordinary inflation or deflation. currency which is unusual or beyond the
(EPCIB, et al. vs Ng Sheung Ngor, common fluctuation in the value said
et al., GR No. 171545, Dec 19, currency, and such decrease or increase
2007) could not have reasonably foreseen or
was manifestly beyond contemplation
Filipino Pipe and Foundry Corp vs the parties at the time of the
National Water Works and Sewerage establishment of the obligation.
Authority
GR No. 434446, May 3, 1988 An example of extraordinary inflation is
the following description of what
FEU-IABF OBLICON SEM2, 2019-2020

FACTS: happened to the Deutschmark in 1920:

On June 12, 1961, NAWASA contracted
FPFC for the latter to supply it with cast More recently, in the 1920's, Germany
iron pressure pipes for the former’s experienced a case of hyperinflation. In
Masbate and Samar projects at a total early 1921, the value of the German
cost of P270,187.50. NAWASA paid in mark was 4.2 to the U.S. dollar. By May
installments on various dates a total of of the same year, it had stumbled to 62
P134,680, leaving a balance of to the U.S. dollar. And as prices went up
P135,507.50. Having completed delivery, rapidly, so that by October 1923, it had
FPFC demanded payment of the balance reached 4.2 trillion to the U.S. dollar!
price with interest. NAWASA failed to pay
the balance. While FPFC’s evidence proved that there
has been a decline in the purchasing
FPFC filed a lawsuit where the court power of the Philippine peso, this
ordered NAWASA to pay the unpaid downward fall of the currency cannot be
balance of P135,507.60 in NAWASA considered "extraordinary." It is simply a
negotiable bonds, redeemable for 10 universal trend that has not spared our
years from issuance with interest of 6% country.
per annum, P40,944.73 as interest up to
May 15, 1966 and the interest accruing Art. 1251 – Payment shall be made
thereafter to the issuance of the bonds at in the place designated in the
6% PA. NAWASA still failed to satisfy the obligation.
decision. On Feb 18, 1971, FPFC filed
another case seeking an adjustment of There being no express stipulation
the unpaid balance in accordance with and if the undertaking is to deliver a
the value of the Philippine peso when the determinate thing, the payment
case was decided on Nov 23, 1967. shall be made wherever the thing

Page | 12
might be at the moment the APPLICATION OF PAYMENTS
obligation was constituted.
Art. 1252. He who has various debts
In any other case, the place of of the same kind in favor of one and
payment shall be the domicile of the the same creditor, may declare at
debtor. the time of making the payment, to
which of them the same must be
If the debtor changes his domicile in applied. Unless the parties so
bad faith or after he has incurred in stipulate or when the application of
delay, the additional expenses shall payment is made by the party for
be borne by him. whose benefit the term has been
constituted, application shall not be
These provisions are without made as to debts which are not yet
prejudice to venue under the Rules due.
of Court.
If the debtor accepts from the
PLACE OF PAYMENT OF OBLIGATION creditor a receipt in which an
1. Place stipulated by the parties; application of the payment is made,
the former cannot complain of the
2. If no stipulation and obligation is same, unless there is a cause for
deliver a determinate thing, place invalidating the contract.
where the thing might be (usually
or habitually) at the time the SPECIAL FORMS OF PAYMENT
obligation was constituted; 1. Application (or imputation) of
payment (Art. 1252)
3. In any other case (as when it is to 2. Dation in payment (adjudicacion en
deliver a generic thing, to give pago) (Art 1245)
money, or in case of personal 3. Assignment in favor of creditors or
obligation), domicile of debtor. cession (Art. 1255)
FEU-IABF OBLICON SEM2, 2019-2020

4. Tender of payment and

consignation (Art. 1256-1261)

Example 1 Application of payment – designation

Ordinarily, a tenant of a house has the of the debt to which should be applied a
right to wait for the landlord in the house payment made by a debtor who owes
since this is an obligation to pay money, several debts in favor of the same
a generic thing. (Mañalac vs Garcia, 76 creditor. It is the phrase applied to show
Phil 216) which debt, out of two or more debts
owing the same creditor, is being paid.
Example 2 IMPORTANCE OF APPLICATION OF
A judgment creditor has to pay only at PAYMENT
his domicile, in the absence of a Otherwise, we may not know which one,
specification in the court decree. of two or more debts has been
(Eastboard Navigation vs Ysmael, L- extinguished.
9090, Sep10, 1957)
E.g.
Example 3 A owes B P1M payable on April 1, 2020. A
Payment not at the designated place but also owes B P1M payable on April 5,
only to the mere depository of the 2020. On April 10, A pays B P1M.
creditor’s funds is not considered as
valid. So if Iloilo was designated, but Here, we will not know which debt has
tender is made in Manila, the payment is been extinguished unless we know the
not generally to be made in Manila. rules on application of payments.
(Gonzaga & Hernandez vs Rehabilitation
Finance Corp, L-8947, Feb 10, 1957) REQUISITES
1. There must be two or more debts
Subsection 1 2. Debts must be of the same kind
Page | 13
 3. Debts are owed by the same shall be applied to all of them
debtor in favor of the same creditor proportionately. (Art 1254)
4. All debts must be due*
5. Payment is not enough to Example 1
extinguish all debts X owes Y the following obligation:
1. P5,000 due on Jan 15, 2018
*EXCEPTIONS TO REQUISITE 4 2. P10,000 due on Feb 14, 2018
Despite the fact that not all debts are yet 3. P20,000 due on Apr 1, 2018
due, application of payment under Art. 4. Two (2) sacks of NFA rice on Apr 15,
1252 still applies: 2018
1. If the parties so stipulate; and 5. P50,000 due on Jul 1, 2018
2. When the application of payment is
made by the party for whose For example, today is May 1, 2018 and X
benefit the term has been has P5,000 which he intends to pay his
constituted. obligation. There is no application of
payment on the 4th obligation because it
PREFERENTIAL RIGHT OF DEBTOR will only be extinguished later on by
It is the debtor who is given by law the delivering rice of the same kind, quality
right to select which of his debts he is and quantity. There is also no application
paying. This right is NOT absolute, of payment on the 5th obligation as it is
however such as when: not yet due.
1. There was a valid prior but contrary
agreement, the debtor cannot What if X wants to apply the P5,000 to
choose; the obligation which will mature on Jan
2. Debtor cannot choose to pay part 15, 2018 but Y wants that it will be
of the principal ahead of the deducted on the P20,000 obligation. This
interest. (Art. 1253) is the kind of situation which will be
resolved by the rules on application of
RULES ON APPLICATION OF PAYMENT payment.
FEU-IABF OBLICON SEM2, 2019-2020

1. Debtor makes the designation (Art

1252, par1) Applying rules on application of payment,
X has preferential right to apply. Thus,
2. If not, the creditor makes it, by so the P5,000 will be deducted from the first
stating in the receipt that he obligation so as to totally extinguish the
issues; not valid if without consent obligation.
of debtor.
If X does not want to make use of such
EXCEPT: There is cause for preferential right, then Y will designate
invalidating the contract. (Art. which debt is to be paid. So that if Y
1252, par2) chooses the third obligation then the
P5,000 will be deducted from the
Note: If the obligation itself is void, P20,000 leaving a balance of P15,000.
the application and payment are
also void. If the debtor’s consent in If X and Y did not make use of the
accepting the receipt was vitiated – application of payment, then the third
as by fraud, error or violence – the rule maybe used and that is, it will be
application is not valid, i.e. applied to the debt which is most
voidable. onerous to the debtor because there is
no factual circumstance to indicate that
3. If the creditor did not apply or if the obligation is burdensome like
application is void, the debt which guaranty, surety, pledge, real estate
is most onerous to the debtor, mortgage, chattel mortgage or interest.
among those due, shall be deemed Hence, if the 1st obligation is secured by
to have been satisfied. (Art 1254) a pledge involving a cellphone, the 2nd
obligation is secured by a guaranty and
4. If the debt due are of the same the third obligation contains a stipulation
nature and burden, the payment as to interest then it should be
Page | 14
mentioned in the facts of the case on 1. Apply it to the most onerous in
what is the most onerous obligation to case the due and demandable
the debtor. Like if the debtor wants to debts are of different nature
have the cellphone which is in possession
of Y being a real contract (perfected by 2. If the debts are of the same nature
delivery of the object to the pledgee). If and burden, application shall be
he wants to lessen his interest, then he made to all proportionately.
might apply his payment to the third
obligation.
SAMPLES OF MORE BURDENSOME (MORE
If there is no debt which is most onerous ONEROUS) DEBTS
to the debtor, then last rule may apply, 1. Older ones in case of running
that is the payment of P5,000 shall be accounts (PNB vs Veraguth, 50 Phil
applied to all of the debts 253)
proportionately.
2. Interest-bearing debts even if the
Art. 1253. – If the debt produces non-interest bearing debt is older.
interest, payment of the principal (Menzi & Co. vs Quing Chuan, 69
shall not be deemed to have been Phil 46)
made until the interests have been
covered. 3. Of two interest-bearing debts, that
which charges the higher interest is
Interest must be paid first. The debtor more burdensome
cannot insist that his payment be
credited to the principal instead of the 4. Debts secured by mortgage or
interest. pledge (Mission de San Vicente vs
Reyes, 19 Phil 525)
WHY? Reduction in the principal would
result in the decrease of the total 5. Debts with a penalty clause
FEU-IABF OBLICON SEM2, 2019-2020

collectible.
6. Advances for subsistence are more
What interest is supposed to be paid? onerous than cash advances
1. Interest by way of compensation; (Montinola vs Gatila, 97 Phil 999)
and
2. Interest by way of damages due to 7. Debt where the debtor is in mora
default is more onerous than the one
where he is not
The law does not make a distinction.
8. An exclusive debt (not solidary) is
Art. 1254. – When payment cannot more onerous than a solidary debt
be applied in accordance with the (Commonwealth vs Far Eastern
preceding rules, or if application Surety, 83 Phil 305)
cannot be inferred from other
circumstances, the debt which is NOTE: If a principal debtor is guaranteed
most onerous to the debtor, among by a surety but the guaranty is for a
those due, shall be deemed to have smaller amount, any partial payment
been satisfied. made by the debtor shall be applied to
the portion which is not secured, since
If the debts due are of the same this exclusive debt is considered more
nature and burden, the payment onerous to him. (HSBC vs Alanese, 48
shall be applied to all of them Phil 990)
proportionately.
Q: If one debt is for P1M, and another is
Rules in case no application of payment for P2M, and only P1M is paid, how will
has been voluntarily made the payment be applied?

Page | 15
A: If the debtor makes the application, the first debt to the second debt is thus
the payment should be credited to the preserved, namely: 2 is to 1.
first debt. The debtor cannot insist that
the creditor accept it for the second debt Subsection 2
for insofar as the second debt is PAYMENT BY CESSION
concerned, it is only a partial payment.
And under the law, a credit cannot Art. 1255. – The debtor may cede or
generally be compelled to receive partial assign his property to his creditors
payment. in payment of his debts. This
cession, unless there is stipulation
If no application has been made, the law to the contrary, shall only release
steps in, and application will be made, the debtor from responsibility for
not equally but proportionately. (Art the net proceeds of the thing
1248) assigned. The agreements which, on
the effect of the cession, are made
NOTE: Sometimes it is hard to determine between the debtor and his
which obligation is most onerous. The creditors shall be governed by
reason is that the burden may be special laws.
relative. It follows, therefore, that no
hard and fast rules can be put up. This Cession or Assignment – Process by
becomes more evident when not one which a debtor transfers all the
circumstance alone is considered but a properties not subject of execution in
combination of different circumstances. favor of his creditors so that the latter
may sell them, and thus apply the
E.g. proceeds to their credits.
Obligation A – is secured by a mortgage,
non-interest bearing and recent. - Special form of payment whereby the
debtor abandons all of his property
Obligation B – is unsecured, but for the benefit of his creditors in order
FEU-IABF OBLICON SEM2, 2019-2020

maximum interest bearing and old. that from the proceeds thereof, the
latter may obtain payment of their
In such cases, the particular credits.
circumstances which have significant
bearing on the case at hand should be KINDS OR CLASSES OF ASSIGNMENT
observed and the balancing must be 1. Legal – Majority of creditors must
done. agree; governed by the Insolvency
Law (Sec 8, Act 1956)
However, as a last resort, when it cannot 2. Voluntary – All creditors must
definitely be determined whether one agree; governed by Art. 1255, NCC
debt is more burdensome than the other,
the author believes that both will be REQUISITES FOR VOLUNTARY
considered equally burdensome, and ASSIGNMENT
hence, payment must be applied to both 1. More than one debt
pro rata. 2. More than one creditor
3. Complete or partial insolvency of
Q: If one debt is P1.2M and the other is debtor
P600k, and the debtor without making 4. Abandonment of all debtor’s
any application of payment gives P300k, property not exempt from
how should said payment be applied, execution, unless exemption is
presuming that both are of the same validly waived by debtor in favor of
nature and burden? creditors
5. Acceptance or consent on the part
A: Payment will be applied of the creditors, for assignment
proportionately. Hence, 200k will be cannot be imposed on an unwilling
deducted from the first and P100k will be creditor.
deducted from the second. The ratio of
EFFECT OF PAYMENT BY CESSION
Page | 16
 1. Creditors do not become the
owners. They are merely assignees Extinguishes the Releases the
with authority to sell. If ownership obligation to the debtor for the net
is transferred, this becomes a extent of the value proceeds of the
dation en pago. of the thing things ceded or
delivered either as assigned, unless
2. Debtor is released up to the agreed upon or as there is a contrary
amount of the net proceeds of the may be proved, intention
sale, unless there is a stipulation to unless silence of
the contrary (Art. 1255, 2nd parties signifies
sentence) that they consider
the delivery of the
3. Creditors will collect credits in the thing as the
order of preference agreed upon, equivalent of the
or in default of agreement, in the performance of
order ordinarily established by law. the obligation

NOTE: Some properties should not Subsection 3

be assigned such as: TENDER OF PAYMENT AND
a. Family home (w/ exceptions, Art CONSIGNATION
223, 226)
b. Amount needed by the debtor to Art. 1256. – If the creditor to whom
support himself and those he is the tender of payment has been
required by law to support. (Art made refuses without just cause to
750) If such amount is not accept it, the debtor shall be
reserved, the cession is not void released from responsibility by the
but merely reducible to the consignation of the thing or sum
extent that the support is due.
impaired. The party prejudiced
FEU-IABF OBLICON SEM2, 2019-2020

can ask the court for the Consignation alone shall produce
reduction. (Agapito vs De Joya, the same effect in the following
CA, 40 OG No. 3526) cases:

Dacion en Pago Cession (1) When the creditor is

Does not affect all In general, affects absent or unknown, or does
properties; only all properties of not appear at the place of
that equivalent of the debtor payment;
the debt (2) When he is incapacitated
to receive the payment at the
Does not require Requires more time it is due;
plurality of than one creditor (3) When, without just cause,
creditors he refuses to give a receipt;
Only the specific Requires consent (4) When two or more
or concerned of all creditors persons claim the same right
creditor’s consent to collect;
is required (5) When the title of the
obligation has been lost.
May take place Requires full or
during the partial insolvency Tender of payment – Act of offering the
solvency of the creditor what is due him together with a
debtor demand that the creditor accept the
same. (Far East Bank & Trust Co vs Diaz
Transfers Does not transfer Realty, GR No. 138588, Aug 23, 2001);
ownership upon ownership may be extrajudicial.
delivery
Really an act of Not an act of Consignation – act of depositing the
novation novation thing due with the court or judicial
Page | 17
authorities whenever the creditor cannot 4. Obligation must already be due.
accept or refuses to accept payment.
(Limkako vs Teodoro, 74 Phil 31); must Art. 1257. – In order that the
always be judicial. consignation of the thing due may
release the obligor, it must first be
NOTE: General Rule: Tender of payment announced to the persons
must be accompanied by consignation in interested in the fulfillment of the
order that the effects of payment may be obligation.
produced. Tender of payment is the
antecedent of consignation. Consignation The consignation shall be ineffectual
without tender of payment and vice if it is not made strictly in
versa produces no effect of payment. consonance with the provisions
which regulate payment.
EXCEPTIONS: Art. 1256, par 2 (1) to (5);
same effect as payment even without REQUISITES OF CONSIGATION:
tender of payment. 1. Existence of a valid debt / debt is
due;
Q: When a debtor owes money lent him
with interest, is it sufficient to just tender 2. Valid prior tender, unless tender is
the principal without the interest? excused

A: No. Tender of the principal must be Creditor to whom tender of

accompanied with the tender of the payment was made refused to
interest which has accrued. Otherwise, accept it; or was absent or
tender is not valid. (Fiege & Brown vs incapacitated; or because of
Smith, Bell & Co. and Cowper, 43 Phil several persons claimed to be
113) entitled to receive the amount due;
or because title to the obligation
WHEN CONSIGNATION IS NOT REQUIRED had been lost
FEU-IABF OBLICON SEM2, 2019-2020

When there is really no debt, no

obligation and payment is purely 3. Prior notice of consignation (before
voluntary, i.e., the person offering at his deposit)
option, could have refused to offer, such
as: Previous notice of consignation had
1. Options been given to the person
2. Pacto de retro sales interested in the performance of
3. Legal redemption the obligation.

Here, only a right, not a duty exists. As 4. Actual consignation (deposit)

any other right, these may also be
waived. If one is granted an option to Amount due was placed at the
buy, he may or may not buy at his disposal of the court.
choice. If one is granted the right to
redeem, he may or may not redeem at 5. Subsequent notice of consignation
his own choice.
After consignation was made,
Thus, if tender of redemption money is person interested was notified of
refused, there is no need to consign it in the action.
court. (Co vs PNB, L-61787, Jun 29, 1982)
Art. 1258. – Consignation shall be
REQUISITES OF TENDER OF PAYMENT: made by depositing the things due
1. Made in legal tender at the disposal of judicial authority,
2. Includes whatever interest is due before whom, the tender of payment
3. Generally, unconditional shall be proved, in a proper case,
EXCEPT when it has conditions and the announcement of the
accepted by creditor without consignation in other cases.
protest
Page | 18
The consignation having been made, 2. Running interest is suspended.
the interested parties shall also be
notified thereof. 3. However, it should be observed
that before the creditor ACCEPTS,
HOW CONSIGNATION IS ACTUALLY MADE or before the judge declares that
Thing due must be deposited with the consignation has been PROPERLY
proper judicial authorities (while MADE, the obligation REMAINS.
ordinarily, the cashier or the cash officer (Padua vs Rizal Surety, 47 OC Supp
should be the person to issue the receipt No. 12, p. 308)
for the money consigned, a temporary
receipt issued by the clerk of court for
said deposit would suffice. (Yap vs
Tingin, L-18943, May 31, 1963)
RISK OF LOSS
There must be proof that: (1) tender had Creditor bears the loss if:
previously been made (general rule); or 1. Consignation is judicially approved;
(2) that the creditor had previously or
notified the debtor that consignation will 2. All the requisites are present
be made (in case tender is not required). 3. If the creditor has signified his
acceptance
Art. 1259. – The expenses of
consignation, when properly made, Otherwise, debtor bears the burden. (Sia
shall be charged against the vs CA, 92 Phil 335)
creditor.
EFFECTS OF IMPROPER CONSIGNATION
CREDITOR GENERALLY BEARS EXPENSES 1. If consignation was improperly
OF CONSIGNATION made, the obligation remains,
Consignation is due to creditor’s fault. because the consignation is NOT
Had he accepted, there would not have EFFECTIVE as payment (Bravo vs
FEU-IABF OBLICON SEM2, 2019-2020

been any need for consignation. If not Barreras, 92 Phil 679)

properly made, consignation expenses
are chargeable to debtor. 2. If at the time of consignation, the
debt was already due, and the
Expenses include those for the requisites for consignation are
preservation or warehousing of the goods absent, the debtor is in DEFAULT.
pending litigation.
WHEN DEBTOR MAY WITHDRAW THE
Art. 1260. – Once the consignation THING OR SUM CONSIGNED
has been duly made, the debtor may As a matter of right:
ask the judge to order the 1. Before the creditor has accepted
cancellation of the obligation. the consignation (Gamboa vs Tan,
L-17076, Jan 29, 1962)
Before the creditor has accepted the
consignation, or before a judicial 2. Before there is a judicial
declaration that the consignation declaration that the consignation
has been properly made, the debtor has been properly made. Here, the
may withdraw the thing or the sum obligation and the accessory
deposited, allowing the obligation to stipulation remain.
remain in force.
The right is given the debtor
EFFECTS IF CONSIGNATION HAS BEEN because he still owns the thing;
DULY MADE however, he bears the expenses.
If the consignation is duly (properly) The co-debtors, guarantors and
made: sureties cannot object.
1. Debtor may ask the judge to order
the cancellation of the obligation. As a matter of privilege:

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 When after the consignation had
been properly made (the creditor When by law or stipulation, the
having accepted or the court obligor is liable even for fortuitous
having declared it proper), the events, the loss of the thing does
creditor authorizes the debtor to not extinguish the obligation, and
withdraw the thing. (Art 1261) he shall be responsible for the
damages. The same rule applies
Q: How can the creditor prevent the when the nature of the obligation
debtor from exercising the right to requires the assumption of risk.
withdraw the thing consumed?
*Loss under this Section includes
A: By immediately accepting the impossibility of performance.
consignation with or without
reservations. If he accepts without WHEN IS THERE LOSS?
reserving his right to further claims such 1. When the object perishes, i.e.
as damages, this would be a case of physically, it is destroyed
waiver. (Sing Juco vs Cuayong, 46 Phil 2. When it goes out of commerce
81) 3. When it disappears in such a way
that
Art. 1261. – If, the consignation a. Its existence is unknown
having been made, the creditor b. It cannot be recovered (Art.
should authorize the debtor to 1189 (2)
withdraw the same, he shall lose
every preference which he may have WHAT IMPOSSIBILITY OF PERFORMANCE
over the thing. The co-debtors, INCLUDES
guarantors and sureties shall be 1. Physical impossibility
released.
2. Legal impossibility
*Withdrawal by debtor after consignation a. Directly caused as when
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has been made is only a matter of prohibited by law; or

privilege. b. Indirectly caused as when the
debtor is required to enter a
EFFECTS: military draft
1. Obligation remains
2. Creditor loses any preference or 3. Moral impossibility, i.e.
priority over the thing impracticability (Art. 1267)
3. Co-debtors (solidary debtors only,
not joint debtors), guarantors and GENERAL RULE: Obligation to deliver a
sureties are released unless they determinate thing is extinguished if it
consented should be lost or destroyed.

Solidary debtors are only released Loss must be AFTER the obligation has
from solidarity, not from their own been incurred. If loss was PRIOR, there
individual shares because solidary would be no obligation.
co-debtors are principal debtors
unlike guarantors or sureties. REQUISITES for the application of the GR
1. Obligation is to deliver a
Section 2 determinate thing
LOSS OF THE THING DUE 2. Thing is lost without fault of the
debtor
Art. 1262. – An obligation which 3. Thing is lost before debtor incurs
consists in the delivery of a delay
determinate thing shall be
extinguished if it should be lost or EXCEPTIONS
destroyed without the fault of the (Obligation to deliver specific thing is
debtor, and before he has incurred extinguished because there is no more
in delay.
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thing to be given. Obligation is converted Sundays. The employees contended that
into a monetary obligation for damages.) they should nevertheless be paid on
Sundays since this prohibition by law was
1. Law so provides (Arts. 1174 & not their fault.
1262)
a. Debtor promised to deliver ISSUE: Should the employees be paid?
the same thing to two or
more persons who do not HELD: No, the employees should not be
have the same interest (Art. paid because the company was
1165) prohibited by law to provided them work
b. Obligation is to deliver a on Sundays. The company’s duty to
generic thing (Art. 1263) provide work on Sundays was
c. Obligation to deliver a extinguished by law, so it is unfair to
specific thing arises from a require it to pay the employees who after
crime (Art. 1268) all would not be working on said days.
d. Loss of the thing occurs with Indeed, the obligation of the employer to
the fault of the debtor (Art. furnish work became a legal
1262) impossibility.
e. Loss of the thing occurs after
debtor incurs delay (Arts. Art. 1263. – In an obligation to
1262 & 1165) deliver a generic thing, the loss or
f. A borrower of an object has destruction of anything of the same
lent the thing to another who kind does not extinguish the
is not a member of his own obligation.
household (Art. 1942 [4])
g. Thing loaned has been EFFECT OF LOSS ON OBLIGATION TO
delivered with appraisal of DELIVER A GENERIC THING
the value, unless there is a
stipulation exempting the GENERAL RULE: Obligation continues to
FEU-IABF OBLICON SEM2, 2019-2020

borrower from responsibility exist because a generic thing does not

in case of a fortuitous event really perish (genus nunquam perit –
(Art. 1942 [3]) genus never perishes)
h. Payee in solutio indebiti is in
bad faith (Art. 2159) EXCEPTIONS:
1. If the generic thing is delimited,
2. Stipulation so provides (Art. 1262, e.g. 50 kilos of sugar from my 1999
op. cit.) harvest when such harvest is
completely destroyed
3. Nature of obligation requires
assumption of risk on the part of 2. If the generic thing has already
the debtor (Ibid.) been segregated or set aside, in
which case it has become specific.
Asia Bed Factory vs National Bed
Worker’s Union 3. Partial loss where the courts
L-9126, Jan 31, 1957 determine that the such partial loss
is so important as to extinguish the
FACTS: The company and its employees, obligation. (Art. 1264)
in a collective bargaining agreement, Art. 1264. – The courts shall
agreed that “employees shall be determine whether, under the
provided with work on Sundays at time circumstances, the partial loss of
and a half (150% wages); and that in the the object of the obligation is so
event NO work on Sundays is available important as to extinguish the
thru no fault of the employees, they shall obligation.
be paid the equivalent of their wages as
if they had performed work for that day.” Art. 1265. – Whenever the thing is
Three months later, the Blue Sunday Law lost in the possession of the debtor,
was passed, prohibiting work on it shall be presumed that the loss
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was due to his fault, unless there is EFFECT OF LOSS THROUGH FORTUITOUS
proof to the contrary, and without EVENT IN RECIPROCAL OBLIGATIONS
prejudiced to the provisions of
Article 1165. This presumption does GENERAL RULE: Obligation remains.
not apply in case of earthquake,
flood, storm or other natural E.g.
calamity. If after perfection, a building that was
sold is destroyed by lightning, the buyer
PRESUMPTION / GENERAL RULE must still pay, for he bears the loss even
Debtor is presumed to be at fault. If a if the building had not yet been delivered
person, for example is entrusted with to him. (See Art. 1191, 2nd sentence of
several heads of cattle and he cannot par2 (Power to rescind obligations,
account for some missing ones, he is implied in reciprocal ones: “xxx He may
presumed to be at fault (Palacio vs also seek rescission, even after he has
Sudario, 7 Phil 275) chosen fulfillment, if the latter should
become impossible.”)
NO PRESUMPTION / EXCEPTION
In case of natural calamity. Presumption EXCEPTIONS
can be controverted by proof to the 1. In case of lease, if the object is
contrary. destroyed, both the lease and the
obligation to pay rent are
Art. 1266. – The debtor in extinguished. (See Art. 1655)
obligations to do shall also be
released when the prestation 2. In contracts for a piece of work.
becomes legally or physically Here, the worker or contractor
impossible to do without the fault of cannot successfully ask for the
the obligor. price if the thing be lost by a
fortuitous event prior to delivery.
LOSS IN PERSONAL OBLIGATIONS w/o Here, the risk is on the worker.
FEU-IABF OBLICON SEM2, 2019-2020

DEBTOR’S FAULT
1. Legal impossibility Art. 1267. – When the service has
2. Physical impossibility become so difficult as to be
manifestly beyond the
NOTE: Impossibility must exist AFTER the contemplation of the parties, the
constitution of the obligation. If it was obligor may also be released
BEFORE, there is nothing to extinguish. If therefrom, in whole or in part.
performance was impossible from the
start, obligation is void. *This Article refers to moral impossibility
or impracticability due to change of
Examples of impossibility: certain conditions; also known as
1. Legal impossibility (Asia Bed case) “Doctrine of Unforeseen Events”
2. Physical impossibility
To install a motor in a ship that was Rebus sic stantibus – a treaty or
lost after perfection of the contract agreement remains valid only if the same
but prior to such installation. (Milan conditions prevailing at the time of
vs Rio y Olabarrieta, 45 Phil 718) contracting continue to exist at the time
of performance.
EFECT OF SUBJECTIVE IMPOSSIBILITY
If the act is subjectively impossible for *Applies only to personal obligations
the debtor himself, but otherwise (“service”), not real obligations (to give).
objectively possible for others, the
obligation usually subsists (Reyes vs Example 1 (MORAL IMPOSSIBILITY;
Caltex, 47 OG 1193), UNLESS personal OBLIGOR CAN BE RELEASED)
considerations are involved such as when The duty to construct a railroad when
only a particular company is prohibited such construction was possible but very
by law to furnish work on a certain day. dangerous to life and property, is
excused by law. Therefore, failure to
Page | 22
grind sugar cane in view of the non- destroyed by fortuitous event, is A’s
construction of the railroad does NOT liability extinguished?
give rise to damages. (Labayen vs
Talisay-Silay Milling Co., 52 Phil 440) A1: No, A’s liability is not extinguished.
However, if instead of extreme danger A’s obligation to deliver the car arose
there is only mere inconvenience, from a criminal offense, and in such case,
unexpected impediments or increased the rule is, he is liable even if the loss
expenses, the same would not be enough occurs because of a fortuitous event.
to relieve a debtor from his “bad
bargain.” (Castro, et al. vs Longa, 89 Phil Q2: Suppose A had previously asked the
581) owner to accept the car, but the owner
without any justifiable reason refuses to
REQUISITES of Art. 1267 accept the car, is A still responsible if the
1. Service must become so difficult car is lost later by a fortuitous event?
that it was manifestly beyond the A2: In this case, the criminal could no
contemplation of BOTH parties. It is longer be liable because here, the
not enough that neither party creditor is in mora accipiendi. This is the
actually anticipated or foresaw the exception to the rule.
difficulty. The difficulty could not
possibly have been anticipated or Q3: If the creditor refuses to accept the
foreseen. thing due from the criminal, what should
the latter do?
2. One of the parties must ask for
relief. A3: The criminal may either consign the
thing or else keep the thing in his
3. Object must be a future service possession. If he does the latter thing, he
with future unusual change in is still obliged to care for it with due
conditions. Naturally, an aleatory diligence, but this time he will not be
contract or one dependent on liable if the thing is lost through a
FEU-IABF OBLICON SEM2, 2019-2020

chance, in view of the risks being fortuitous event.

foreseen does not come under the
scope of 1267. Art. 1269. – The obligation having
been extinguished by the loss of the
Art. 1268. – When the debt of a thing, the creditor shall have all the
thing certain and determinate rights of action which the debtor
proceeds from a criminal offense, may have against third persons by
the debtor shall not be exempted reason of the loss.
from the payment of its price,
whatever may be the cause of the TRANSFER OF RIGHTS FROM THE
loss, unless the thing having been DEBTOR TO THE CREDITOR IN CASE OF
offered by him to the person who LOSS
should receive it, the latter refused
justification to accept it. E.g.
S is obliged to deliver his car to B. But X
EFFECT OF LOSS IN CRIMINAL OFFENSES destroys the car B has a right to sue X.
Fortuitous event does not extinguish the The right is given to B instead of S
obligation. because otherwise S would unduly profit
in that he will gain two things: first, his
EXCEPTION obligation to give the car or its value is
When the creditor (the offended party in already extinguished; second, he would
the crime) is in mora accipiendi. be allowed to recover from X. It is
obvious that S must not unduly profit at
E.g. the expense of B.
Q1: A commits theft, and is asked to
return the car stolen from the owner, B. Rights of action – right to bring a
If, before the car is delivered to B, it is specific case to court; includes the

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insurance indemnity that may have been be reducible, so that the legitimes
received. of the compulsory heirs would not
be impaired.)
Section 3
CONDONATION OR REMISSION OF 7. Formalities of a donation are
THE DEBT required in the case of an express
(not implied) remission. (Art. 1270);
Art. 1270. – Condonation or must be in a public instrument in
remission is essentially gratuitous, order to be valid (Art. 749)
and requires the acceptance by the
obligor. It may be made expressly or 8. Waivers or remissions are not to be
impliedly. presumed generally. They must be
CLEARLY and CONVINCINGLY
One and the other kinds shall be SHOWN, either by express
subject to the rules which govern stipulation or by acts admitting of
inofficious donations. Express no other reasonable explanation
condonation shall, furthermore, (Arrieta vs NARIC, L-15645, Jan 31,
comply with the forms of donation. 1964)

Remission or Condonation – Inofficious donations – those that

Gratuitous abandonment by the creditor exceed its limitations.
of his right
Art. 750. – The donations may
comprehend all the present property of
the donor, or part thereof, provided he
ESSENTIAL REQUISITES OF REMISSION reserved, in full ownership or in usufruct,
1. There must be an AGREEMENT sufficient means for the support of
(since acceptance by the debtor of himself, and all relatives who, at the time
the offer is required) of the acceptance of the donation, are by
FEU-IABF OBLICON SEM2, 2019-2020

law entitled to be supported by the

2. The parties must be CAPACITATED donor. Without such reservation, the
and must CONSENT (therefore, it is donation shall be reduced in petition of
beyond the power of the courts or any person affected.
of Congress to condone interest Art. 752. – The provisions of Article 750
unless the creditor consents) notwithstanding, no person may give or
(Bañez vs Young, L-4635, Oct 27, receive by way of donation, more than
1952) that he may give or receive by will.

3. There must be SUBJECT MATTER LIMITS OF DONATION

(object of the remission – Donation of movable (Art. 748):
otherwise, there would be nothing - P5k and below – no need to be
to condone) in writing
- >P5k – needs to be in writing
4. The cause or consideration must be
liberality (for remission is Donation of immovable (Art. 749):
ESSENTIALLY GRATUITOUS). - Made in public instrument,
Otherwise, the act may be dation in specifying therein the property
payment, or a novation, or a donated and the value of the
compromise charges which the done must
satisfy
5. The obligation remitted must have - There must be acceptance
been DEMANDABLE at the time of o Made in the same deed; or
remission. Otherwise, the remission o In a separate public
is useless. document
o But shall not take effect
6. Remission must NOT be unless acceptance is done
INOFFICIOUS (otherwise, it would
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 during the lifetime of the When H & W paid P600k, a voucher
donor stating that the amount of P600k was
- If acceptance is made in a paid as “full payment of the loan.” X Corp
separate document, donor shall demands that H & W still pay additional
be notified thereof in an P50k. H & W claims, however that the
authentic form and this step P50k has been condoned already by P as
shall be noted in both evidenced by the voucher.
instruments
ISSUE: Whether or not X Corp is entitled
KINDS / CLASSES OF REMISSION to additional P50k.
1. As to form
a. Express – When made in HELD: Yes, X Corp is still entitled to
accordance with formalities additional P50k. Art. 1270, par 2 provides
of donation if inter vivos; or that express condonation must comply
of a will or codicil if mortis with the forms of donation. Since the
causa amount exceeds P5k, it must be made in
b. Implied – When, although not writing. Otherwise, the same is void.
made in accordance with
formalities prescribed by law In the case at bar, the alleged agreement
for donations, it can be to condone P50k was not reduced to
deduced from the acts of the writing. (Patterned after Yam and Sunt
obligee or creditor; conduct is Lent vs CA, et al., GR No. 104726, Feb
sufficient 11, 1999)

2. As to extent or effect Art. 1271. – The delivery of a private

a. Total – entire obligation is document evidencing a credit, made
extinguished voluntarily by the creditor to the
b. Partial – Only a portion is debtor, implies the renunciation of
remitted; or may refer only to the action which the former had
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accessory obligation, or an against the latter.

aspect thereof which affects
the debtor, as for instance If in order to nullify this waiver it
solidarity should be claimed to be inofficious,
the debtor and his heirs may uphold
3. As to constitution / date of it by proving that the delivery of the
effectivity document was made in virtue of
a. Inter vivos – during lifetime of payment of the debt.
donor; constituted by
agreement of the obliged and Art. 1272. – Whenever the private
the obligor document in which the debt appears
b. Mortis causa – after death of is to be found in the possession of
donor; constituted by last will the debtor, it shall be presumed
and testament that the creditor delivered it
E.g. voluntarily, unless the contrary is
FACTS: H & W solidarily owe X Corp proved.
P500k. When the loan fell due, H & W
were not able to pay. Because of non- EFFECT OF DELIVERY OF PRIVATE
payment, principal obligation ballooned DOCUMENT EVIDENCING CREDIT
to P650k to include interest of P100k and Remission is presumed. Note that the
penalty charges of P50k. H & W went to article speaks of “private,” not public
the P, company president of X Corp instrument.
asking that the penalties amounting to
P50k be condoned and they can pay the Lopez Vito vs Tambunting
entire P600k (principal P500k + interest 33 Phil 226
P100k). P agreed.
FACTS: Steffi made a promissory note in
favor of Agassi in the amount of P700.
Page | 25
For the purpose of collecting fees for his
services, Agassi voluntarily delivered the A2: Since this is a solidary obligation, the
promissory note to Steffi without presumption is that the whole obligation,
collecting the P700. Steffi is now in not just A’s share, has been remitted.
possession of the said note.
Q3: In both cases, may the presumption
ISSUE: W/N there is a disputable be rebutted?
presumption that there has been a
remission. Was there remission? A3: yes, presumption in both cases can
be overcome by superior contrary
HELD: Yes, there is a presumption that evidence.
there was remission as given under Art.
1188 (now Art. 1271), NCC. However, this Art. 1273. – The renunciation of the
presumption cannot stand if sufficient principal debt shall extinguish the
proof to the contrary is adduced. There accessory obligation; but the waiver
was no remission in this case because of the latter shall leave the former
the presumption was overturned. in force.

For such a presumption may be taken RENUNCIATION OF PRINCIPAL

into account, it is necessary that the EXTINGUISHES ACCESSORY, BUT NOT
evidence of the obligation be delivered VICE VERSA
up to the debtor and that the delivery of
the instrument proving the credit be E.g.
made voluntarily by the creditor to the A remission of the penalty does not remit
debtor. In the present case, it cannot be the principal obligation, but if the
said that these circumstances concurred, principal debt is condoned, the penalty is
inasmuch as when the plaintiff sent the also condoned.
receipt to the defendant for the purpose
of collecting his fee, it was not his Art. 1274. – It is presumed that the
FEU-IABF OBLICON SEM2, 2019-2020

intention that that document should accessory obligation of pledge has

remain in the possession of the been remitted when the thing
defendant if the latter did not forthwith pledged, after its delivery to the
pay the amount specified therein. creditor, is found in the possession
of the debtor, or of a third person
NOTE: who owns the thing.
While Art. 1271 gives a presumption of
remission, Art. 1272 gives a presumption REMISSION OF PLEDGE
of voluntary delivery. Here, only the accessory obligation of
pledge is presumed remitted. The
EFFECT IF THE OBLIGATION IS JOINT OR principal obligation (loan) remains in
SOLIDARY force.

E.g. Presumption is only disputable, for the

A & B owe C P100k, evidenced by a debtor or the third person may be in
private document. possession of the property by theft or
because it had been sent for repairs, or
Q1: If the private document is found in for similar causes.
the possession of A, who is a joint debtor,
what is the presumption? REASON FOR THE PRESUMPTION
It is essential in pledge that the thing is
A1: Presumption is that only A’s debt has delivered to the creditor, or to a third
been remitted. A’s debt is not P100k, but person by common agreement.
only P50k.
POSSESSION BY A THIRD PERSON
Q2: If the private document is found in If the third person does not own the
the possession of A who is a solidary thing, the presumption does not arise. As
debtor, what is the presumption? a matter of fact, the stranger may just
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have found it or it may have been
delivered to him only for safekeeping.

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