SPECIAL FORMS OF PAYMENT
not make an application of payment, then the
1. Application of Payment
2. Dation in Payment
3. Payment by Cession
4. Tender of Payment and Consignation
Q: APPLICATION OF PAYMENT?
- Designation of the debt in which the debtor
wants his payment to be applied.
Q: Requisites of Application of Payment?
1. One Debtor and Creditor
2. There are several debts due
3. Payment is not sufficient to cover the debts
NOTE: All debts must be of the same kind. [essential
requisite]
- Primarily it is the debtor who can make an
application of payment but the creditor may
also make such application of payment.
Q: Is it an Absolute Right?
- No. because there are limitations in making an
application of payment:
1. Debtor cannot compel the creditor to
accept the PARTIAL PAYMENT.
(Rationale: it will violate the characteristic
of Indivisibility of Payment)
2. Debtor cannot make a payment that is not
yet due.
3. If stipulated in the contract on how a
payment is to be applied, he cannot make a
payment other than what was stipulated.
4. Cannot apply a payment to a debt which is
not yet liquidated.
5. It cannot apply to debts with interest (the
payment should be first applied to the
interest, should there be an excess, then
such excess will apply to the principal debt)
Q: When must application of payment be made?
- At the time payment is made.
- There is no prohibition of law which forbids
application of payment in advance.
Q: When may a creditor make an application of
payment?
- when the debtor at the time of payment does
creditor may now choose on where the
payment will be made to apply.
Q: Is the right to make an application of payment is only
for the debtor?
- No. it is also for the creditor.
- Creditor may propose of how a payment made
be applied.
- Receipt is not a requirement of payment
Q: in making an application of payment, is the consent
of the creditor necessary to the validity made by the
debtor?
- No. Consent of the creditor is not necessary.
Q: Can the creditor object to the application of payment
made by the debtor?
- Yes. But it must be made on the grounds
provided by law.
Q: In how many ways may the application of payment
be made?
1. When the debtor applies the payment
2. When the creditor applies the payment
3. Neither debtor nor the creditor made an
application of payment, then the payment is
applied in accordance with law.
Q: What is the Burdensome Rule? When and who can
invoke the rule?
- Neither debtor nor creditor can invoke this rule.
- It will apply only to legal application of payment
which means that it is made in accordance with
law and not on the will of the parties.
Q: How will the payment be applied?
- The payment shall be applied to the debt which
is more burdensome. (debtor)
Q: DATION IN PAYMENT?
- A form of payment wherein the debtor alienates
(transfer) his property in favor of the creditor to
satisfy the debt in money.
Q: Who makes the alienation?
- The Debtor.
Page 1 of 3
OBLIGATIONS AND CONRACTS – Finals
R.A. 2010-2011
Q: For what purpose?
- In payment to the debt in money
- To satisfy the debt in money
- It is an XPN to identity of Payment because the
creditor is receiving something different from
what is originally due.
Q: If the obligation is does not involve money, can there
be Dation in payment?
- Yes. Because it can also be applied in
satisfaction of non-monetary debts. (barter)
- Dation in payment shall be governed by the law
in sales.
Q: Since Dation in Payment is the alienation of property,
does it constitute Novation?
- No. because they are different.
- Novation may take place in 3 ways:
a. Change in the object
b. Change in the cause of the obligation
c. Change in any of the principal condition of
the obligation
Q: Dation v. Novation?
- They don’t have the same purpose.
- In Dation in payment, the principal obligation is
extinguished while in Novation, when you
change the object another obligation arises.
- In Dation in payment, the purpose is simply the
extinguishment of the obligation.
Q: Should the consent of the creditor be obtained in
Dation in Payment?
- Yes. Because there is a change in the object
(substitution).
- The creditor must accept such change to make it
valid.
Q: What kind of properties may be alienated?
- Since the law does not distinguish, it can extend
to all kinds of properties.
Q: Is it necessary that the property be equal to the
amount of payment to be made?
- No. The law does not require.
Q: Does Dation in Payment always extinguish the
obligation?
- No. Sometimes it ends up in Partial
Extinguishment, depending on the agreement
of the parties.
Q: Suppose the creditor loses possession of the
property, will it revive the original obligation?
- No. The remedy of the Creditor when this
happen will be:
o Law on sales will apply when it comes
to Dation in Payment
o The Law on Sales states that, there are 2
kinds of Deprivation:
1. Deprivation in Fact – when a person
was disposed by another for what
he was bought. (Go to court and
sue as the owner of the property)
2. Deprivation in Law – when a person
loses the property, he may ask for a
court order.
Q: What is the remedy of the buyer when he gets
evicted on the property he has bought?
- He can invoke the warranty against the seller.
- He can go after the seller (Deprivation in Law)
Q: PAYMENT BY CESSION
- [Requisite] Consent of ALL the creditors must be
obtained
- Should 1 of the creditors objects, payment by
cession could not take place.
- The debtor gives authority to the creditor to sell
his property.
- There is no transfer of ownership in payment by
cession, just an authority to sell the debtor’s
property.
Q: Is it an absolute rule to extinguish the obligation?
- No. because only the proceeds of the sale is the
basis of the extinguishment
- If the sale is still not enough to cover the debt,
the obligation still exists.
Q: Voluntary Insolvency?
- The debtor goes to court and asks to declare
him insolvent.
Page 2 of 3
OBLIGATIONS AND CONRACTS – Finals
R.A. 2010-2011
 - The mere declaration of insolvency doesn’t
discharge the debtor from his obligation to the
creditor, what release him from the obligation is
the issuance of a “Discharge”.
Q: TENDER OF PAYMENT & CONSIGNATION
- Tender of payment does not extinguish an
obligation because it is only an offer to pay. It is
only considered as preparatory to consignation.
- Consignation is a judicial proceeding wherein
the thing due is placed under judicial disposal.
(but it is not always judicial)
Q: How to make a consignation? (Art 1256) –
MEMORIZE!
1. When creditor is absent or unknown, or
does 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 as been lost
NOTE: Consignation can also be made in accordance
with BP 25, wherein it allows consignation be done
extra-judicially but only for rentals in arrears.
(Rationale: rentals can be made deposited not only in
the court but also in the bank, under the name of the
creditor)
Q: What is the 2-notice rule given by the debtor to the
creditor?
1. Prior act of consignation
2. Actual act of deposit
Q: What is the purpose of the 2-notice rule?
1. Purpose #1 – to give the creditor an opportunity
to reconsider his unjust refusal
2. Purpose #2 – to inform the creditor where the
consignation was made. (so that if he wants to
claim it, he knows where to get it.)
Q: When is consignation not proper?
- SC ruled that consignation is not proper when
what is involved is the right of redemption
because there is no payment due or payment to
be paid.
Q: Is it necessary that the property be equal to the
amount of the payment made?
- No. the law does not require.
Q: May the debtor withdraws what has been deposited?
- Yes. As long as the creditor hasn’t claimed what
has been consigned. The debtor is still deemed
the owner.
- The consent of the creditor is not necessary in
order for the debtor to withdraw what was
deposited.
Q: If the creditor withdraws what was consigned, is the
consent of the debtor necessary?
- No. but the debtor can object if the claim to
withdraw was made by the creditor with
reservation.
Q: What is a withdrawal with reservation?
- The creditor claims that what was consigned is
only a partial of what is due.
Q: Consignation as a special form of payment?
- It must comply with the requisites of payment,
particularly in the proper place of payment.
- In case of loss, even if due to fortuitous events
or without debtor’s fault, the obligation is not
extinguished.
CASE: LIM
- SC ruled that the obligation is not extinguished
if the payment was not made in the proper
place.
- It must comply with the requisites of payment,
particularly complying with what is the proper
place of payment.
Page 3 of 3
OBLIGATIONS AND CONRACTS – Finals
R.A. 2010-2011