C4- Extinguishment of Obligation-S1
Payment or Performance
GENERAL PROVISION
ARTICLE 1231:
Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code. (1156a)
Ang mga obligasyon ay mawawala o matatapos kapag
nangyari na ang mga sumusunod na bagay:
(1.) Sa pagbabayad o pag ganap;
(2.) Sa pagkawala ng bagay na kailangan ibayad o ibigay;
(3.) Sa pagbibigay ng kapatawaran o ng pagbabalewala ng
utang;
(4.) Ang pagsasama sa iisang tao ng obligasyon ng
pagiging nagpautang at umutang;
(5.) Palitan ng obligasyon;
(6.) Pagpapalit ng panibagong obligasyon.
Ang mga ibang dahilan ng pagkatapos o pagkawala ng
obligasyon katulad ng annulment, rescission, at pagsagawa
o katuparan ng resolutory condition, and prescription, ay
pinamamahalaan ng ibang artikulo mula sa Code na ito.
Other causes of Terminating Obligations:
1. Waiver or Renunciation
2. Mutual Agreement
3. Compromise
4. Fulfillment of Resolutory Condition (Art 1179)
5. Expiration of Resolutory Term (Art 1139)
6. Prescriptio
7. Death of the debtor when the obligation is purely personal
8. Decision or will of one of the parties in certain contracts like agency,
partnership
9. Happening of unforeseen events
10. Abandonment of the property charged with an obligation
SECTION 1
ARTICLE 1232:
Payment means not only the delivery of money but also
the performance, in any other manner, of an obligation.
(n)
Ang pagbabayad ay nangangahulugan hindi lamang ang
pagbibigay ng pera kundi pati na rin ang pagganap, sa
anumang iba pang mga paraan, ng isang obligasyon.
DISSCUSSION
Concept of Payment. Payment is the consummation or fulfillment of a
prestation that is due, leading to the extiguishment of the obligation.
Examples: If D is obligated to give E a specific car, payment is made by
delivering the car.
If C is obligated to repair the computer of F, payment is made
by performing the service.
Requisites of Payment. A valid payment must fulfill the following requisites
- The person who pays or the payor
- The person to whom the payment is made or the payee Right to Rescind
- The thing to be paid
- The manner, time and place of payment
Kinds of Payment. Payment may be normal/voluntary or abnormal/involuntary.
- It is normal or voluntary when a debtor willingly pays or performs the
prestation stipulated;
- and it is abnormal or involuntary when the debtor is forced to pay or
perform the prestation by order of the court.
ARTICLE 1233:
A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be. (1157)
Ang utang ay hindi naiintindihang nabayaran na hangga’t ang
bagay or serbisyo na nakapaloob sa obligasyon ay buong
nabigay na o nagawa na, alin man sa dalawang nabanggit.
Discussion:
Payment extinguishes debt.
Evidence of payment of burden of proof
- Presentation of receipt is a good proof of payment. Therefore, a debtor
can demand the issuance of a receipt from the creditor once his debt is
paid. Consignation may be requested by the debtor in case the creditor
refused to issue the receipt. The burden of proof of payment lies on the
debtor, after the creditor has shown that the debt exists.
ARTICLE 1234:
If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.
Kung ang obligasyon ay natupad o nagawa ang importanteng
parte ng obligasyon, ang gumawa ay maaring maningil na tulad
sa pagsisingil niya kung ang obligsyon any natapos, maliit
lamang ang nawala sa nagpagawa.
General Rule: A debt shall not been paid unless the thing or service
in which the obligation consists has been completely
delivered or rendered, as the case may be.
Exception:
1. If the obligation has been substantially performed in good faith
the obligor may cover as though there had been a strictly and
complete fulfilment less damages suffered by the oblige.
2. When the oblige accepts the performance knowing the
incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with.
Discussion:
Substantial Compliance
- Substantial compliance means that the debtor, when in good faith, has
attempted to perform the contract or prestation, but through oversight,
or any excusable neglect, he failed to make a full and complete
performance, for which the other party may be indemnified, there is
already a substantial compliance and the debtor shall recover as though
there had been a strict and complete fulfillment of the obligation.
The omission or defect must be slight, unimportant, or not so material in the
obligation as to frustrate the accomplishment of the intended work. The
omission or defect must also be in good faith, that is, it was not intended by
the debtor.
The right to rescind if there is substantial compliance cannot be invoked.
This is because the obligee has already benefited from the obligation.

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.
Kapag ang pinagkakautangan ay tumangap ng hindi sapat o
hindi tama at hindi sya nagreklamo o umangal, ang obligasyon
ay paniniwalaan na nagawa na ng buo.
*The word “ACCEPT” on this article means to take as “satisfactory or
sufficient,” or to “ give assent” or to “agreed” or “accede” to an incomplete
performance. The creditor has waived his right to question the defect/s by
accepting the incompleteness without making any protest or objection.
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)
Ang nagpapautang ay hindi kabilang o nasasakop ng
pagtanggap ng pagbabayad ng ikatlong tao na walang
kinalaman o interes sa kaganapan ng obligasyon, maliban
kung mayroong kasunduan sa isang banda.
Ang sinumang nagbayad para sa iba ay maaaring
makapaningil sa nangutang ng kanyang binayaran,
maliban na kung siya ay magbayad ng hindi alam at hindi
ayon sa kagustuhan ng nagpautang, mababawi o masisingil
lamang niya ito kung ang pagbabayad ay may
kapakinabangan sa inutang.
- If the third person pays the obligation of the debtor with the knowledge
and consent of the latter, the payor is entitled to be reimbursed for the full
amount he paid.
- Same rule applies if the debtor knows that the third person is making a
payment but he did not object thereto or he did not repudiate at the same at
anytime.
- If the payment was made without the knowledge of or against the debtor’s
will, the reimbursement shall be only up to the amount or extent by which
the debtor was benefited. Consequently, if the debt had already prescribed
or had already been compensated, the payment would no longer be
beneficial to the debtor. Under situation, the payor is definitely not entitled
to reimbursement from the debtor.
ARTICLE 1237:
Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel
the creditor to subrogate him in his rights, such as those
arising from a mortgage, guaranty, or penalty. (1159a)
Sinuman magbayad sa ngalan ng umutang ng hindi nito alam o
hindi ayon sa kanyang kagustuhan, hindi mapipilit ang
nagpautang upang mapalitan sya sa kanyang mga karapatan,
tulad ng mga bagay mula sa pagkasanla, garantiya o multa.
DISCUSSION
Consequences of Payment Made By A Third Person Without The Knowledge
or Against The Will of The Debtor
He can only recover the payment that is beneficial to the debtor.
He cannot place himself to have all the rights pertaining to the debtor.
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)
C4- Extinguishment of Obligation-S1
Payment or Performance
Ang bayad na ibinigay ng ikatlong tao para sa inutang ng isang
tao na hindi na inaasahang maibalik ang kabayaran sa kanya ay
kinokonsidera na isang donasyon, na nangangailangan ng
kaalaman ng nagpautang. Ito ay may bisa kung sakalit tinanggap
ito ng nagpautang.
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)
Sa obligasyon ng pagbibigay, walang bisa ang pagbabayad na
ginawa ng isang tao na walang kalayaan sa pagbabayad ng
bagay na may palugit, at may kakayahan na ilipat ang
pagmamay-ari nito ng walang pagkiling sa probisyon ng artikulo
1427 na sumasailalim sa titulo ng Natural na Obligasyon.
General Rule: Payment by an incapacitated person is not valid
Exception: Article 1427 of the new cicil code
Discussion:
Free disposal of the thing due means that the thing to be delivered must not be
subject to any claim or lien or encumbrance of a third person (e.g. mortgage,
pledge)
Capacity to alienate means that the person is not incapacitated to enter into
contracts and for that matter, to make a disposition of the thing due.
Illustrations: Joana agreed to sell to Cardo a car. If the car set to be delivered
by cardo by Joana owned by Lola Kap without any agreement
and authority to the Joana to sell the car , the same can be
recovered by Lola Kap the payment is not valid, Joana does not
have free disposal of the car the thing to be delivered must not be
subject to any claim or lien or encumbrance of a third person
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 received it.
TO WHOM THE PAY MENT TO BE MADE –
1. The repayment of a debt must be made in person in whose
favor the obligation is constituted or to another authorized to
received the payment in his name.
2. His successor in interest
3. Any person authorized to receive it
AUTHORIZED PERSON
Legal – when conferred by Law (Authorized Guardian, Administrator of
an estate of a deceased creditor.
Conventional – Authority given by the creditor himself to an agent to collect
from the debtor
PAYMENT TO A WRONG PARTY –
payment made to a wrong party does not extinguished the obligations as to
the creditor.
If there is no fault or negligence which can be imputed to the creditor.
Even the debtor acted in outmost good faith or through error induced by fraud
of the third person who is not in fact his creditor or any agent authorized to
received such payment is VOID.
EXCEPT when provided by Art 1241, such wrong payment does not
prejudice the creditor and is not suspended by it
DEPOSIT IN BANK – The deposit of an obligation by the debtor in a bank in
the name of the creditor (without authorization of the
Creditor) does not constitute payment
DEPOSIT IN COURT – Consignation in court, when properly made
extinguished obligation

ARTICLE 1241:
Payment to a person who is incapacitated to admnister 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)
Ang kabayaran sa isang taong walang kakayahang
pangasiwaan ang kanyang ari-arian ay balido kapag nabigay
nya ang bagay na hinihingi sa kanya, o hangga’t ang
kabayaran ay naging benepisyal sa kanya.
Ang kabayarang ibinigay sa ikatlong tao ay balido hangga’t
ang naging bunga nito ay benepisyal sa inutangan. Ang
benepisyong tinutuloy ay kinakailangang patunayan ng mga
sumusunod:
1.) Kung pagkatapos ng kabayaran, ang pangatlong tao ay
nakuha ang karapatan ng pinakautangan;
2.) Kung ni-ratify ng pinagkautangan ang kabayaran para sa
pangatlong tao;
3.) Kung sa inaasal ng pinagkautangan, napaniwala niya ang
may utang na ang pangatlong tao ang may kapangyarihang
tanggapin ang kabayaran.
Discussion:
Artile 1241 applies to payments made by the debtor with the intention to
extinguish his debts. The rationale behind this article is that, since the creditor
is incapacitated and cannot administer his own property, the creditor needs a
legal representative or a guardian to receive the payment. If there is none, the
debtor may consign the thing in court so that he will be released from the
obligation.
Moreover, Article 1241 is an exception to the rule made by Article 1240 that
states “Payment shall be made to teh person in whose favor the obligation has
been constituted, or his successor in interest, or any prson authorized to receive
it.” Payment to a third person may still be valid as long the creditor is being
benefited. Therefore, the validity of the payment is co-extensive to the benefit
the creditor receives. Nevertheless, this benefits require evidence to establish
the extent it was enjoyed.
Illustration: If A owes B, then the obligation matures, suddenly B got
involved in a car accident that caused him to suffer coma.
Either A can choose to pay B by paying his medical expenses
or consign his payment to the court. A’s payment will be valid
as long as the payment he made will be beneficial to the
incapacitated creditor.
Payment made to the Incapacitated Creditor, Effects.
If the payment made to the incapacitated creditor who cannot administer his
property did not benefit him or he has not kept the thing delivered, the debtor
may be compelled by the creditor to pay anew when he regains capacity, or by
the latter’s representative during the time of the incapacity of the creditor.
Inversely, if the incapacitated creditor has kept the thing delivered or he
benefited from the payment he received, the debtor is relea
During the creditor is incapacitated and to cannot administer his own sed from
his obligation by virtue of payment. property , should be given to his legal
representative, if there is none the debtor may consign the thing in the court.
ARTICLE 1242:
Payment made in good faith to any person in possession
of the credit shall release the debtor.
Ang pagbayad ng may utang na ginawa nang walang daya
o malisya sa tao na may hawak ng utang ay magpapalaya
sa nangutang sa kaniyang obligasyon.
C4- Extinguishment of Obligation-S1
Payment or Performance
Discussion
This law is intended to protect the debtor from being required to pay again the
payee.
Possession of credit
- Possession of credit does not refer to the real creditor or his heirs, or
the person authorized by him or by law under Article 1240. It refers to
the person who has the appearance of the creditor but who actually is
not.
- This is different from possession of the document representing the
document.
Example: if a document which is payable to order or to a definite person is
in the possession of someone but without any indorsement, the
possession is not of the credit but only of the title, and payment to
the holder is not a valid payment.
- The possession of credit means an actual and legal relation between
the credit and the possessor of the document.
Example: an instrument payable to bearer is held by the person to whom it
is intended.
Case Illustration
Facts: Panganiban is the owner of a parcel of land. He sold the land to
Gonzales with a right to repurchase. During the war, Panganiban
failed to find Gonzales, and the land was attached by the
revolutionary government. Since Panganiban has a right to
repurchase, he paid the repurchase price to the revolutionary
government in good faith. It turned out however that Gonzales
sold the land to Cuevas. Panganiban brought an action to
recover the land from Cuevas.
Issue: Whether or not Panganiban has the right to recover the land from
Cuevas, given that he already paid the repurchase price to the
revolutionary government.
Held: No. Article 1164 (in the New Civil Code it is Article 1242) cannot
be used in this case because the payment to the revolutionary
government was an invalid payment. The government merely
attached the property which attachment merely prohibited its
alienation. For the provision to be considered in this case, the
revolutionary government must be in the possession of the credit.
However, it was not.
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.
The judicial order may have been prompted by an order of attachment,
injunction or garnishment.
Garnishment
- The proceeding by which a debtor’s creditor is subjected to the payment
of his own debt to another.
Interpleader
- It is technical name of the action in which a certain person in possession
of certain property wants claimants to litigate among themselves for the
same.
Injunction
- It is a judicial process by virtue of which a person is generally ordered
to refrain from doing something.
Preliminary attachment
- A writ of preliminary attachment is a provisional remedy issued upon
order of the court where an order is pending to levy upon the property
or properties of the defendant therein, the same to be held thereafter by
the sheriff as security for the satisfaction of whatever judgement might
be secured in said action by the attaching creditor against the defendant.
Final attachment
- It is one that is issued to enforce a judgment that has already become
final and executor.

Preliminary Injuction
- It is an order granted at any stage of an action or proceeding prior to
the judgement or final order, equiring party or a court, agency or a
person to refrain from apraticular act or acts.
Final Injuction?
- It is one included in the judgment as the relief or part of the relief
granted as a result of the action.
Garnishment
- It is a specie or attachment in which plaintiff seeks to subject his
claims properties of the debtor in the hands of a stranger.
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)
Ang nagpapautang ay hindi kabilang o nasasakop ng
pagtanggap ng pagbabayad ng ikatlong tao na walang
kinalaman o interes sa kaganapan ng obligasyon, maliban
kung mayroong kasunduan sa isang banda.
Ang sinumang nagbayad para sa iba ay maaaring
makapaningil sa nangutang ng kanyang binayaran,
maliban na kung siya ay magbayad ng hindi alam at hindi
ayon sa kagustuhan ng nagpautang, mababawi o masisingil
lamang niya ito kung ang pagbabayad ay may
kapakinabangan sa inutang.
General Rule: is that the creditor shall be paid only what has been stipulated
upon because the contract between the contracting parties is
the law between them. The contract shall be respected.
- The rule applies even though the thing being offered as substitute is
worth more than the very thing agreed to be delivered.
Personal positive or negative obligations, an act or forbearance cannot be
substituted by another act unless the creditor consents. The consent shall
constitute a waiver of right.
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)
Ang pagbabago sa pagbabayad, na kung saan ang pagaari ay
nailipat sa nagpautang upang matugunan ang nautang na
salapi, ay dapat na mapamahalaan ayon sa batas ng bentahan
Requisites for dacion en pago are:
1. There must be a performance of the prestation in lieu of payment
(animosolvendi) which may consist in the delivery of a corpora; thing
or a real right or a credit against the third person
2. There must be some difference between the prestation due and that
which is given in substitute (aliud pro alio); and
3. There must be an agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of the performance
of a presatation different from the due.
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.
Kung ang obligasyon ay may kinalaman sa pagdadala ng
bagay na hindi tukoy at walang eksaktong paglalarawan,
ang nagpapautang ay hindi makakapag-aatas ng
obligasyon na may mahigit na kalidad at hindi rin naman
pwedeng magbigay ang umutang na may mahina o
mababang kalidad. Ang mga bagay na may kinalaman sa
obligasyon ay kailangang bigyan ng konsiderasyon.
C4- Extinguishment of Obligation-S1
Payment or Performance
- The debtor who is obliged to deliver a generic thing cannot be compelled
to deliver a thing of superior quality. Neither can he compel the creditor to
accept a thing of inferior quality. Delivery of an average or medium
quality will be sufficient taking into account the purpose of the obligation.
Example: A promised to deliver to B a horse. B cannot compel A to deliver
a price-winning race horse. Neither can A required to accept an
old sickly horse.
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)
Maliban kung ito ay nasasaad, ang kinakailangan para sa
extrajudicial na gastusin ay pananagutan ng nangutang. Para
naman sa judicial na gastusin ang panuntunan ng hukuman ang
siyang masusunod.
General Rule: Extra judicial expenses
Extra judicial expense incurred during payment are for the account of the
debtor
Exception: When it is otherwise stipulated
Discussion:
If the parties have made a stipulation as to who will bear the
expenses, then their stipulation shall be followed. Art. 1247 does
not apply to expenses incurred by the creditor in going to the
debtor’s domicile to collect (Art. 1251)
Losing Party party generally pays judicial cost generally pays
judicial cost. These are the statutory amounts allowed to party to
an action. Under Rules of Court Sec. 1, Rule 142 , the costs of an
action shall, as a rule be paid by the loMsing party. The court
may, however, for special reasons, adjudge that either party shall
pay the costs or that the same be divided as may be equitable.
Illustration: Mr. Dimaano is the owner of an apartment entered into an
entered into a lease agreement with Mr. Dela Cruz for the
amount of P3,000.00 to be paid every 5th of the month. However,
Mr. Dela Cruz failed to make the payments for 4 months despite
oral demands. Mr. Dimaano wish to have Mr. dela Cruz vacate
the property and collect the unpayed rental fee. He then seek the
service of Atty. Dela Torre and paid a fee of P5,000.00 . Two
(2) demand letters sent via registered mail and incurred P350.00
for such. Later on, Mr. Dela Cruz, forwarded his intent to vacate
the apartment and make the payment for his debt, which shall
include the unpaid rental and the expenses incurred upon hiring
legal service.
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.
Maliban na lamang na may pagpapahayag ng
istipulasyon na magkaroon ng bisa, ang nagpautang
ay hindi maaaring pilitin ng paunti unti na
tumanggap ng prestasyon kung saan ang obligasyon
ay nilalaman. Kahit pa ang umutang ay hilingin na
bumayad ng hindi pa buo.
Subalit, kung ang utang ay pinagbayaran ang ibang
parte or hindi pa nabayaran, ang napautang ay
maaaring sapilitan at ang umutang ay maaaring
bigyan ng epekto ang dati ng hindi na kinakailangan
ng bayad ng nauna na.

1. Performance Should be generally be complete
- Under Art. 1233 of the Civil Code, a debt shall not be understood to have
been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be. Hence, partial
performance is not allowed generally under Art. 1248.
2. Exceptions: Partial performance is allowed:
1. When there is stipulation to this effect;
2. When the different prestations are subject to different
conditions or different terms;
(Example: a debt payable in installments)
1. When a debt is in part liquidated and in part unliquidated, in
which case performance of the liquidated part may be insisted
upon either by the debtor or the creditor.
Examples: D owes C P3 million plus damages. Even if the amount of
damages has not yet been ascertained, the P3million is already
known or liquidated. This is already demandable and payable.)
2. When a joint debtor pays his share or the creditor
demands the same;
NOTE: This is a complete payment of his share, but it is still a partial fulfillment
of the whole obligation.
1. When a solidary debtor pays only the part demandable
because the rest are not yet demandable on account of
their being subject to different terms and conditions;
2. In case of compensation, when one debt is larger than
the other, it follows that a balance is left.
3. When work is to be done by parts.
General Rule: A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be.
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 to 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 abeyance. (1170)
[Ang kabayaran ng utang sa salapi ay naaayon sa pera na
nakasaad, at kung hindi posible na ito ay mabigay sa
ganoong pera, ito ay isasalin sa pera na legal na pinaiikot
sa Pilipinas.]
Ang pagbibigay ng promissory notes na kabayaran sa
order o sa pagpapalit ng perang papel, o kahit na anong
pangkalakal na dokumento, ay magbubunga lamang
ng epekto na nakapagbayad sa oras na ito ay napalitan ng
salapi, o kung sa pagkakamali ng pinagkautangan ito ay
nasira.
Samantala, ang aksyon nanggaling sa orihinal na
obligasyon ang dapat na ipagpaliban.
Discussion:
The rule is different when there is extraordinary inflation or
deflation under Article 1250, wherein the value of the
currency at the time the obligation was established shall be
the basis of payment, if there is an official pronouncement
or declaration of an extraordinary inflation or deflation.
Concept of Legal Tender
Legal tender refers to the currency which may be used for payments of
debts whether public or private, and which the creditor cannot refuse to
accept. In the Philippines, the legal tender covers all notes and coins issued
by the Central Bank of the Philippines.
C4- Extinguishment of Obligation-S1
Payment or Performance
Also, under Presidential Decree No. 72, effective November 29, 1972, there is
a limit in the use of coins as legal tender to release the creditor from the
burden of counting huge amounts of money in coins. The creditor will find it
troublesome not only to count them, but also to carry them. So, he may not
accept coins as payment beyond what the law allows.
1.) 1 centavo coins and 5 centavo coins are legal tender up to P20.00.
2.) Other coins (.10, .25, and P1) are legal tender up to P50.00
3.) Paper bills or money issued by the Central Bank are valid legal
tenders for any amount unlike coins.
Payment in Negotible Documents
Examples of negotiable documents are checks, promissory notes payable to
order or bills of exchange are not considered as legal tenders. Therefore, the
creditor has the right to refuse acceptance of these documents as payment, even
if they happen to be good. The law says that these papers shall produce the
effect of payment only when they have been encashed – which means they
have been honored by the drawee bank and have been exchanged with cash
money.
Rule on payment in check
A check is not a legal tender, whether it is an ordinary check or manager’s
check. The rule applies even if the check was consigned in court. However,
there are exceptions to this rule:
1. When a manager’s check was consigned with the court which the
clerk of court endorsed to the Provincial Treasurer and which then
honored by the bank and credited to teh treasurer’s account;
2. When the creditor has accepted the debtor’s check for the
repurchase of the latter’s property, the former cannot, the following
day refuse to accept the check anymore as payment. The creditor is
under estoppel having induced the debtor to believe that he had
consented such form of payment;
3. When after the payment of the check in court the vendor a retro, the
vendee a retro petitioned the court to allow him to withdraw the
amount in deposit, the payment in check is valid;
4. When the check had lost its value due to the fault of the creditor,
such when he unreasonably delayed the presentation of the check
with the drawee bank for payment, the payment in check is valid;
5. When the foreign bill of exchange lost its value for the reason that
the creditor had neglected to make a protest. Had there been a
timely protest, the debtor could have pursued the right of recourse
against the parties who are secondarily liable.
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)
Sa pagkakataong ang sobra-sobrang pagtaas o pagbaba ng
pera na nasa stipulasyon ay mangyayari, ang halaga ng pera sa
oras na nagawa ang obligasyon ang magiging batayan sa
pagbayad, maliban lamang kung iba ang napagkasunduan.
APPLICATION
When contract or agreement is involved
Does not apply when an obligation to pay arise from Law, independent of
contracts
Example:
– The taking of private property of the Government in the exercise of
its power of eminent domain.
Extraordinary Inflation or Deflation
- Applies to cases where extraordinary inflation and deflation of
stipulated currency takes place.
-
Extraordinary inflation or deflation
- Unusual or beyond the common fluctuation.

Extraordinary inflation to affect an obligation the following requisites
must be proven:
1. That there was an official declaration of extraordinary inflation
or deflation from the Bangko Sentral ng Pilipinas
2. That the obligation was contractual in nature; and
3. That the parties expressly agreed to consider the effects
of the extraordinary inflation or deflation.
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 domiciles 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.
Ang kabayaran ay dapat gawin sa lugar kung saan itinalaga
ang obligasyon.
Na walang nakasaad na stipulasyon at kung ang layunin ay
magdala ng bagay, ang kabayaran ay dapat gawin kung saan
ang bagay sa sandaling ang obligasyon ay ginawa.
Sa kahit anong kaso ang lugar ng pagbabayad ay dapat sa
tirahan ng nangutang.
Kung ang nagutang ay nagbago ng lugar na tinitirhan sa
masamang intension/hangarin o pagkatapos siyang mahuli sa
pagbabayad, ang dagdag na gastos ay maipapataw sa kanya.
Ang probisyon na ito ay walang kinalalaman sa lugar na
tinutukoy sa Rules of Court.
Place of Payment of the obligation
1. Payment shall be made in the place stipulated by the parties
2. If there is no stipulation and the obligation is to deliver a
determinate thing, payment shall be made wherever the thing
might be at moment the obligation was constituted.
3. 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.
What is Venue?
- Is the place where a civil action must be filed or instituted.
Special Forms of Payment
1. Application of payment
2. Dation in payment
3. Payment by cession
4. Tender of payment and consignation
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 due.
If the debtor accepts from the creditor a receipt in
which an application of payment is made, the former
cannot complain the same, unless there is a cause for
invalidating the contract.
C4- Extinguishment of Obligation-S1
Payment or Performance
Kapag ang isang tao na may iba’t ibang pagkakautang na may
parehong uri, na pumapabor sa isang nagpautang, ay maaari na
sa oras ng pagbabayad, ay sabihin kung alin sa mga utang ang
kabayaran ay in-aplay. Malilban kung napagkasunduan ng
partido, o kung ang pagbabayad ay ginawa ng isang partido na
kung saan kung kaninong kapakinangan ang termino ay binuo,
ang aplikasyon ay hindi maaari sa utang na hindi pa dapat
bayaran.
Kung ang nangutang ay tinanggap mula sa nagpautang ang
resibo na kung saan ang aplikasyon ng kabayaran ay naisagawa,
ang unang nabanggit ay hindi maaaring magreklamo, maliban
kung may kadahilanan upang ipawalang bisa ang kontrata.
Discussion:
Definition of application of payments.
- It is the designation of the particular debt being paid by e debtor who has
two or more debts or obligations of the same kind in favor of the same
creditor to whom the payment is made.
Right to make application of payments primarily to the debtor .
The debtor has the right to choose which of the several due shall be paid. The
right belongs primarily to the debtor. But, there is a proper time for the
designation of the payment. It must be made at the moment of payment.
The creditor may have the right to apply to which of the several debts the
payment was made by issuing receipts, if the debtor failed to exercise his
right. The payment is deemed applied to the specific indebtedness mentioned
in the receipt, if the debtor has accepted the receipt without objection.
Requisites for a valid application of payments by the debtor.
1. There is only one debtor and one creditor;
2. The debtor owes the creditor two or more debts which are of the same
kind or identical specie;
3. All the debts are due and demandable;
4. The payment made by the debtor is not sufficient to cover or settle all
the debts.
Requisites for a valid application of payments by the creditor.
1. The debtor did not make any designation on which debt should be paid
when he made the payment;
2. The creditor issued a receipt expressing the application of the payment
to a particular debt;
3. The debtor assented to the application of the payment to a particular debt.
Limitation of the preferential right of the debtor to choose the debt to be
paid.
1. The debtor cannot apply to a debt not yet liquidated or due;
2. If the creditor is given a benefit of the period or term, which has not yet
arrived, an application of payment cannot be made by the debtor;
3. If there is a specific agreement as to which debts shall be paid first, the
debtor cannot vary the agreement without the consent of the creditor;
4. If there is principal obligation which bears interests, the debtor cannot pay
the interest without first paying the principal;
5. A debtor cannot choose to pay a bigger debt partially, when the payment
made can be applied as full payment to a smaller debt.
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)
Kapag ang utang ay nagkaroon na ng tubo, ang kabayaran ng
puhunan ay dapat na hindi tanggapin hanggang ang tubo ay
hindi kasama.
Discussion
1) Interest must be paid first – obligatory
(2) Effect if payment is credited to the principal – reduction of principal
(3) What interest is supposed to be paid
(a) interest by way of compensation
(b) interest by way of damages due to default
 C4- Extinguishment of Obligation-S1
Payment or Performance
ARTICLE 1254: Subsection-3 Tender of payment and consignation
When the payment cannot be applied in accordance with the
preceding rules, or if application can not be inferred from Article 1256:
other circumstances, the debt which is most onerous to the If the creditor to whom tender of payment has been made
debtor, among those due, shall be deemed to have been refuses without just cause to accept It, the debtor shall
satisfied. released from responsibility by the consignation of the thing
If the debts due are of the same nature and burden, the or sum due.
payment shall be applied to all of them proportionately.
(1174a) 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
In cases of multiple debts, to determine the onerous of the same, the following place of payment;
may be stated as bases for such determination, to wit; 2. When he is incapacitated to receive the payment at the time it is
- In the event that one obligation is principal in nature and the other was due;
incurred as surety to another, the former is more onerous. 3. When without just cause, he refuses to give a receipt;
- Where there are various debts, the oldest ones are more burdensome, and 4. When two or more persons claim the same right to collect;
payments should be applied to them before the most recent ones. 5. When the title of the obligation has been lost.
- The debt that earns interest is onerous than the debt that does not.
- The debt with security is onerous than that of having none. Meaning of tender of payment:
- It means the offer to pay on the part of the debtor and it must be shown
Subsection-2 Payment By Cession that the debtor has, at the time of making the offer, the thing or amount to
be paid.
ARTICLE 1255:
The debtor may cede or assign his property to his Meaning of consignation:
creditors in payment of his debts. This cession, unless - Consignation is the act of depositing the thing due with the court or
there is stipulation to the contrary, shall only release the judicial authorities whenever the creditor cannot accept or refuses to
debtor from responsibility for the net proceeds of the accept payment and it generally requires a prior tender of payment.
thing assigned. The agreements which, on the effect of
the cession, are made between the debtor and his Consignation is a facultative remedy:
creditors shall be governed by special laws. (1175a) - Fundamentally, consignation is a facultative remedy which the debtor
may or may avail of; and if made by the debtor, the creditor merely
Ang nangutang ay maaaring italaga ang kanyang pag-aari accepts it if he wishes, or the court declares that it has been merely
sa kanyang inutangan para sa pagbabayad sa kanyang accepts if he wishes, or the court declares that it has been properly
inutangan ng inutang. Ang pagtatalaga, maliban kung may made, in either of which event the obligation is ordered
nasasaad na kasalungat, ay maari lang na palayain ang cancelled. Necessarily, consignation is a judicial act from which are
nangutang sa kanyang responsibilidad para sa natitirang derived the immediate consequences which the debtor desires or seeks
halagang bagay na itinalaga. Ang kasunduan na epekto ng to obtain. Indeed, consignation is one of the means for the payment or
pagtatalaga, ay ginawa sa pagitan ng nangutang at nagpa- discharge of a debt.
utang ay pinamamahalaan ng espesyal na batas.
Discussion: Formal requirements of consignation:
Payment by Cession is another special form of payment. It is assignment and 1. Existence of valid indebtedness;
abandonment of all the properties of the debtor for the benefit of his creditors in 2. There must be valid tender of payment and refusal to accept
order that the latter may sell the same and apply the proceeds thereof to the without justifiable reason;
satisfaction of their credits. 3. There must be notice of consignation to the persons interested
before and after the deposit.
Classes of Cession or Assignment: 4. Deposit with the judicial authority.
Voluntary or Contractual – cession or assignment by agreement of the parties
Involuntary or legal – cession or assignment which is governed by the Illustration:
insolvency law (Act 1956) Consignation how made:
Requisites: X was indebted to Y in the amount of P10, 000. On maturity of the
1. There is plurality of debts; obligation, S offered to pay Y the P10, 000 but the latter (Y ) refused to
2. Debtor must be partial or completely insolvent; accept the payment without justifiable reason. X then notified Y, thus: “I
3. There are at least 2 creditors; will file a complaint against you and deposit the money in the proper court
4. There is acceptance of the cession or assignment by the creditors; of Manila on May 25, 1990 at 10:00 o’clock a.m., if before that time you do
5. The property ceded or assigned must not exempt from execution. not accept my payment. Y having refused payment, X went to the proper
court, proved to the clerk of court’s satisfaction that there was valid tender
Cession or Assignment /vs/ Dation: of payment, that Y, the creditor unjustly refused to accept the payment and
Object: What is ceded is the What is delivered is only a that, there was a previous notice of consignation. The clerk accepted the
universality of debtor’s particular property deposit. Thereafter, X gave notice to Y that amount had been deposited in
property excluding those considered as an equivalent court.
exempted from execution of the performance of the Effects of absence
obligation; Suppose Y was absent at the place of payment, then X could only consign
Number There is plurality of creditors There may be only one (deposit) then amount in court.
of Parties creditor Incapacity to receive payment.
: Suppose Halili became insane at the time payment became due, then
Financial Debtor is insolvent Not necessarily insolvent. Javier also could make consignation.
Condition dation payment can take Two or more persons claim same right to collect.
of debtor: place even when the debtor Suppose Arnaldo, aside from Halili, also claimed payment of P1,000.00f
is solvent rom Javier, and later could not determine to whom payment should be
Effect: Ownership is not transferred to Ownership is transferred to made, then Javier could also consign the amount in court.
the creditor the creditor upon delivery When the title of obligation is lost.
Novation: Not an act of novation of the an act of novation Suppose Halili could not return the document evidencing the obligation,
contract then Javier could make consignation in court.
 C4- Extinguishment of Obligation-S1
Payment or Performance
Distinction Between Tender of Payment and Consignation
Rejection of tender of payment.
Basis Tender of Payment Consignation
A tender of payment which is rejected by the creditor does not ripen into
payment because of such rejection. The remedy of the debtor is to make 1. Nature It is the antecedent of It is the principal or
consignation thereof as required by law and give notice of the consignation or consummating act for
consignation to the creditor. preliminary act to the extinguishment of
consignation. the obligation.
Tender payment by check. 2. Effect It does not by itself It extinguishes the
A check intended to pay a debt, if refused by obligee or creditor, is not a extinguish the obligation when
valid tender of payment. The fact that in previous years payment in obligation. declared valid.
check by the debtor was accepted by the creditor does not place the 3. Character It is extrajudicial. It is judicial for it
latter in estoppel to prevent him from requiring the former to pay his requires the filing of
obligation in cash. If such check refused by the creditor is not a valid complaint in court.
tender of payment, its consignation in court does not render it legal,
valid and effective. Requisites of Consignation:
1. Presence of existing valid debt which is due
Tender of payment must be unconditional. 2. Presence of prior valid tender of payment
An offer to deposit payment due in trust or in escrow cannot be 3. Refusal of creditor to accept amount or thing tendered
considered payment since it is a conditional tender and would have left 4. Presence of prior notice of consignation
the creditor unable to make use of the money rightfully due to it. A 5. Actual deposit of the amount or thing in court or competent authority
tender of payment to be valid must be unconditional. 6. Second notice after the making of the deposit is mandatory

Consignation alone shall produce the same effect in the following cases: ARTICLE 1259:
The expense of consignation, when properly made, shall be
1. When the creditor is absent or unknown, or does not appear charged against the creditor.
at the place of payment;
2. When he is incapacitated to receive the payment at the time Ang mga gastos ng consignation, kapag maayos na nagawa, ay
it is due; maipapataw laban sa nangutang.
3. When without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect; *If the consignation is properly made the filling of the suit must bear the
5. When the title of the obligation has been lost. expenses of consignation like storage fees, filling fees, attorney’s fees and other
related expenses.

ARTICLE 1257: ARTICLE 1260:

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 provision which regulate
the payment.
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
the 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.

Upang mapalaya ang may utang mula sa consignation ng
kanyang pagkakautang, kinakailangan muna niyang
ipaalam ito sa mga taong interesado sa pagtupad ng
obligasyon.
Ang consignation ay walang bisa kapag ito ay hindi ginawa
sa paraang naaayon sa probisyon na nag-aayos ng
kabayaran.
Discussion:
The purpose of the announcement if to give the creditor the chance to
accept the tender of payment and avoid unnecessary litigation.
The article emphasises on the fact that consignation must be strictly made
in consonance with the provisions of the law in order for it to be effectual or
valid.
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.
Kapag ang pagkakatiwala ay naisagawa na, ang may utang ay
maaaring hilingin sa hukom na ipag-utos na kanselahin ang
obligasyon.
Bago pa man tanggapin ng nagpautang ang pagkakatiwala, o
bago pa man ipahayag ng hukuman na nagawa na ang
kasunduan sa pagkakatiwala, ang nangutang ay maaaring
bawiin ang bagay o kabuuan ng kanyang naideposito,
pumapayag na ang obligasyon ay manatili pa rin.
Discussion:
Effect of valid consignation.
- When the consignation is properly effected, the court will order the
cancellation of the obligation upon motion duly filed by the debtor.
When the validity of the consignation has been affirmed by the court, the
consignation shall have a retroactive effect. The obligation is deemed
paid from the moment the amount or the thing due has been actually
placed at the disposal of the court. The running of interest if stipulated is
also deemed suspended at the same time.
Effect of improper consignation.
- If the consignation is not properly made the obligation stays as the
attempted consignation did not amount to payment.

Ang consignation ay mangyayari sa pamamagitan ng Effect of dismissal of the consignation case.

pagdeposito sa korte ng bagay na obligasyong ibigay, at
ang korteng ito ay kung saan ang tender of payment ay
kailangang patunayan, sa tamang kaso, at sa paghahayag
ng consignation ng iba pang kaso.
- If the case has been dismissed by the court for any valid reason the
attempted consignation will have no favorable effect upon the debtor.
Withdrawal of the thong or sum deposited, when available.
- The debtor who made the deposit may still withdraw the thing or sum of
money he had deposited in court provided that:
 C4- Extinguishment of Obligation-S1
Payment or Performance
A. The creditor has not yet accepted the thing or sum deposited;
B. That the court had not yet made a judicial declaration that the
consignation had been properly made.

The reason why debtor may still withdraw the thing deposited is that he still
owns the money or thing deposited at the precise time.
Judicial approval is necessary to render consignation effective and valid.
Without judicial approval, the amount deposited continues to be under the
disposition of the debtor. After the consignation has been approved, the debtor
may ask for the cancellation of the obligation.

ARTICLE 1261:
Art. 1261. If, the consignation having been made, the
creditor should authorize the debtor to withdraw the
same, he shall lose every preference which he may have
over the thing. The co-debtors, guarantors and sureties
shall be released. (1181a)

Effect of withdrawal with authority of the creditor:

- Since consignation is for the benefit of the creditor, he may authorize
the debtor to withdraw the deposit after he has accepted the same or
after the issuance of the court cancelled the obligation, the co-debtors,
guarantors and surety shall be released from the obligation. The solidary
debtors shall be released only from their solidary liability, but not from
the share of their obligation.

Q. Can the debtor may revived the obligation of the guarantor?

A. No, the debtor cannot revived the obligation without the consent of the
guarantors

Effects if after proper consignation the debtor withdraws:

1. The obligation remains
2. The creditor shall lose every preference which he may have
over the thing
3. The co-debtors guarantors and sureties shall be released