(1248-1257)

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ART. 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)

NOW

ART. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially
to receive the prestation in which the obligation consists. Neither may the debtor be required to make
partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the
debtor may effect the payment of the former without waiting for the liquidation of the latter (1169a)

Performance of obligation should be complete.

The above provision contemplated obligations where there is only one creditor and only on debtor. Joint
and solidary obligations are governed by Articles 1207 to 1222

In order that payment may extinguish an obligation, it is necessary that there, be complete performance
of the prestation. (Art. 1233) The creditor may accept but he cannot be compelled to accept partial
performance. The debtor has the duty to comply with the whole of the obligation but he cannot be
required to make partial payments if he does not wish to do so.

When partial performance is allowed.

There are cases, however, when partial performance may be either required or insisted. Among there
cases are:

1. When there is an express stipulation to the effect (par.1.);

2. When the debt is in part liquidated (definitely and determined or computed) and in part
unliquidated (par.2.);
3. When the different prestations in which the obligation consists are subject to different terms or
conditions which affect some of them. In obligations which comprehend several distinct
prestations (e.g., obligation to pay debt in installments), it is evident that the prestations need
not be executed simultaneously but each successive execution thereof must be complete

EXAMPLES

1. D is indebted to C for P5,000 due today. D cannot compel C to receive P4,000 in partial payment
of the obligation and neither can C require D to pay only P4,000 unless there is an agreement to
the contrary.
2. If D owes C P5,000 plus the share of C from the profit of a business which, however, has not yet
been liquidated or determined, C may demand and D may effect the payment of the P5,000, which
is already known
3. If P4,000 o the debt of D is due today and P1,000 tomorrow, the obligation can be complied with
partially. Similarly, partial performance may be effected in case the payment of the P1,000 is
subject to the fulfillment of a condition.
 4. If S obliged himself to deliver 50,000 bags of cement to B at the construction site of a building. S
makes a first delivery of 5,000 bags informing B that continuous deliveries will follow. In this case,
B cannot, in good faith refuse to accept the partial deliveries as long as they are sufficient for his
construction needs

ART. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible
to deliver such currency, the in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance. (1170)

Meaning of legal tender.

Legal tender is that currency which is offered by the debtor in the right amount, the creditor must accept
in payment of a debt in money

Legal tender in the Philippines

Debts in money shall be paid in the currency stipulated. If it is not possible to deliver such currency or in
the absence of any stipulation to make payment in a foreign currency, then the payment shall be made in
the currency which is legal tender in the Philippines.

In the Phlippines, all coins and notes issued by the Bangko Sentral ng Pilipinas (BSP) constitute legal tender
for all debts, both public or private.

Unless otherwise fixed by the Monetary Board of the BSP, coins are legal tender for amounts not
exceeding P50.00 for denomination of P0.25 and above, and in those od amounts not exceeding P20.00
for denominations of P0.10 or less

All coins and bill above P1.00 are, therefore, valid legal tenders for any amount.

Payment by means of instuments of credits

1. Right of creditor to refuse or accept – promissory notes, checks, bills of exchange and other
commercial documents are not legal tender and, therefore, the creditor cannot be compelled to
accept them. This is true even though the check is certified (see Negotiable Instruments Law [Act
No. 2031], Sec. 189.), or is a manager’s check.
The creditor, however, if he chooses, may accept them, without the acceptance
producing the effect of payment. In the meantime, the demandability of the original
obligation is suspended.
The creditor must cash the instrument, and it is only when it is dishonored that he can
bring an action for non-payment of the debt
2. Effect on obligation – payment by means of mercantile documents does not extinguish the
obligation:
a. Until they have been cashed;
b. Unless they have been impaired through the fault of the creditor. (par. 2.)
EXAMPLE

D owes C P10,000 which is due today. Here, payment in cash and in legal tender is implied. C can
legally refuse to accept a check from D and insist on payment in cash. He has the legal right to treat their
contract as breached unless D complies.

If C accepts, there is no payment yet until the check has been cashed or when through his fault, it
has been impaired as when he ahs delayed in presenting the check for payment value by reason of the
insolvency of the bank

The payment by check is considered to be only a conditional payment. D is not finally released
until the check has been honored by the bank on which it was drawn. But until the check is dishonored, C
cannot demand the payment of the obligation.

ART. 150. In case an extraordinary inflation or deflation of the currency stipulated shoud 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 currency. (n)

Meaning of inflation and deflation

1. Inflation is a sharp sudden increase of money or credit or both without a corresponding increase
in business transactions. (Webster’s Dictionary.) Inflation causes a drop in the value of money,
resulting in the rise of the general price level
2. Deflation is the reduction in volume and circulation of the available money or credit, resulting in
a decline of the general price level; it is the opposite of inflation

Basis of payment in case of extraordinary inflation or deflation

Under Article 1250, the purchasing value of the currency at the time of the establishment of the obligation
shall be the basis of payment, in case of any extraordinary increase or decrease in the purchasing power
of the currency which the parties could not have reasonable foreseen. This is, however, subject to the
agreement of the parties to the contrary.

EXAMPLE

D borrowed from C P5,000 payable after 5 years. On the maturity of the obligation, the values of
P5,000 dropped to P2,500 because of inflation (or increased to P10,000 because of deflation).

In this case (assuming there is extraordinary inflation or deflation), the basis of payment shall be
the equivalent value of the currency today to the five (5) years ago. Hence, D is liable to pay C P10,000 (or
P2,500) unless there is an agreement to the contrary, e.g. that D shall pay C P5,000 regardless of any
extraordinary decrease or increase in the purchasing power of the peso.

From the employment of the words “extraordinary inflation or deflation or deflation of the currency
stipulated,” is can be seen that the legal rule in Article 1250 envisages contractual obligations where a
currency is selected be the parties as the medium of payment. It does not apple where the obligation to
pay arises from a source independent of contract or agreement, such as law, quasi-contract, crime, or
tort.
ART. 1251. Payment shall be made in the place designated in the obligation

There being no express stipulation and 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 domicile of the debtor.

If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses
shall be borne by him.

These provisions are without prejudice to value under the Rules of Court.

Place where the obligation shall be paid

Article 1251 gives the rules regarding the place for the payment of an obligation without prejudice to
venue under the rules of Court.

1. There is a stipulation, the payment shall be made in the place designated

2. If there is a stipulation and the thing to de delivered is specific, the payment shall be made at the
place where the thing was, at the perfection of the contract.
3. If there is no stipulation and the thing to be delivered is generic, the place of payment shall be the
domicile of the debtor. In this case, the creditor bears the expenses in going to the debtor’s place
to accept payment (see Art. 1247) subject to the rule in paragraph five

The order as above enumerated is successive and exclusive as may be gleaned from the provision
itself.

Note: Venue is the place where a court suit or action must be filed or instituted

Domicile is the place of a person’s habitual residence; the place where he has his true fixed permanent
home and to which place he, whenever he is absent, has the intention or returning.

Residence is only an element of domicile. It simple required bodily presence as in inhabitant in a given
place, which domicile (or legal residence) requires bodily presence in the place and also an intention
to make it one’s domicile

It is believed that the term “domicile”, as used in Article 2051, connotes “actual” as distinguishes from
“legal” residence

EXAMPLES

1. S obliged himself to deliver to B a specific refrigerator. It was agreed that the refrigerator shall be
delivered at B’s house. The house of B shall be the place of delivery
2. If there is no agreement as to the place of delivery and the refrigerator was in the house of C
when the parties entered into contract, then the delivery shall be made at the house of C. But is
the refrigerator was temporarily at some place (e.g., on a ship in transit), the place of delivery
shall be the domicile of S unless otherwise stipulated.
3. If the obligation of S is to pay B a sum of money (a generic thing), the place of payment is that
designated in the obligation; otherwise, B must have to go to the house of S to receive payment.
B incurs the expenses incidental to such collection. If S changes his domicile in bad faith or after
he has incurred in delay, the additional expenses shall be borne by him.
SUBSECTION 1 – Application of Payments

ART 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 whose benefit the term has been
constituted, application shall not be made as to debts which are not yet due

If the debtor accepts from the creditor a receipt in which an application of the payment is made,
the former cannot complain of the same, unless there is a cause for invalidating the contract

Meaning of application of payments

Application of payments is the designation of the debt to which should be applied the payment made by
a debtor who has various debts of the same kind in favor of one (1) and the same creditor.

Requisites of application of payments

The requisites are:

1. There must be one (1) debtor and one (1) creditor;

2. There must be two (2) or more debts
3. The debts must be of the same kind
4. The debts to which payment made by the debtor has been applied must be due; and
5. The payment made must not be sufficient to cover all the debts

Application as to debts not yet due

The application of payments as to debts not yet due cannot be made unless:

1. There is a stipulation that the debtor may so apply; or

2. It is made be the debtor or creditor, as the case may be, for whose benefit the period has been
constituted

Rules on application of payments

A debtor who has several different debts may make part payment. As to which debt is paid, the rules are
as follows:

1. The debtor has the first choice; he must indicate at the time of making payment, and not
afterwards, which particular debt is being payed. If, in making use of his right, the debtor applied
the payment to a debt, he cannot later claim that it should be applied to another debt
2. The right to make the application once exercised is irrevocable unless the creditor consents to the
change;
3. If the debtor does not apply payment, the creditor may make the designation by specifying in the
receipt which debt is being paid.
4. If the creditor has not also made the application, or it the application is not valid, the debt, which
is most onerous to the debtor among those due, shall be deemed to have been satisfied; and
5. If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately.

EXAMPLES
D owes C as follows:

a. P1,500 payable on September 5;

b. P1,200 payable on September 20;
c. A specific transistor radio worth P2,000 to be delivered on September 20; and
d. P1,000 payable on October 15.
1. On September 20, D payed C, P1,500. D may apply the P1,500 to debt (a), or to debt (b) and
(if C does not object) to a portion of debt (a).
If D paid only P1,000, he cannot choose to apply his payment to the P1,500 debt because C
cannot be compelled to receive partial payment. D cannot properly apply his payment to debt
(c ) because it is not of the same kind. He must deliver the very thing agreed upon. Neither
can he apply it to debt (d) which is not yet due unless there is a stipulation to the contrary or
he has the benefit of the period
An application of payment made by the debtor without objection from the creditor is binding
upon the latter. His acquiescence is equivalent to an agreement and has the force and efficacy
of a contract

2. Id D does not make a choice, C can make the designation in the receipt with the consent of D.
D may change the application made by C. Note that the law says “if the debtor accepts”, which
implies that he ahs the liberty to reject also
The acceptance by D if the receipt given by C is regarded be the law as a contract in itself
independent of the principal obligation. His acquiescence to the application made by C
amounts to an assent to such application which he may no longer revoke or change “unless
there is a cause for invalidating the contract” as where the consent if D in accepting the receipt
was vitiated by reason of fraud, mistake, undue influence, etc.

3. If C does not make the application in the receipt or no receipt was issued by him, then the
legal rules in Article 1254 will govern.

ART. 1253. If the debtor produces interest payment of the principal shall not be deemed to have been
made until the interests have been covered

Interest earned paid ahead of principal

The rule laid down in the article is mandatory. Hence, the debtor cannot choose to credit his payment to
the principal before interest is paid. The payment must be applied first to the interest and whatever
balance is left can be credited to the principal. The creditor can refuse an application of the debtor made
contrary to the provision of Article 1253.

The rule is subject, however, to any agreement between the parties, or to waiver by the creditor. In this
sense, Article 1253 is merely directory

EXAMPLE

D owes C P10,000 with P1,000 as accrued interest. D pays C P10,000

 The P10,000 will first be applied to the interest earned by the debt. Then the balance of P9,000
will be credited to the amount. Therefore, D will still owe C P1,000 of the principal.

ART. 1254 When the payment cannot be applied in accordance with the preceding rules, or it application
cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those
due, shall be deemed to have been satisfied

If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately.

Application of payment to most onerous debt

In case no application of payment has been made by the debtor and the creditor, then the payment shall
be applied to the most onerous debt, and if the debts are of the same nature and burden, to all of them
proportionately

When a debt more onerous than another

A debt is more onerous than another when it is more burdensome to the debtor. No fixed rule can be laid
down in determining which debt is more onerous to the debtor since the condition of being more
burdensome is a matter dependent upon the circumstances. The Supreme Court, however, in various
decisions has given some rules which can be followed to determine whether one (1) debt is more
burdensome than another.

1. An interest-bearing debt is more onerous than a non-interest-bearing debt even if the latter is an
older one
2. A debt as a sole debtor is more onerous than as a solidary debtor
3. Debts secured by a mortgage or by pledge are more onerous than unsecured debts
4. Of two (2) interest bearing debts, the one with a higher rate is more onerous
5. An obligation with a penalty clause is more burdensome than one without penalty clause.

When debts subject to different burdens

Suppose the debts are subject to different burdens (like one debt secured by a mortgage and the other
with a penalty clause) that it cannot be definitely determined which debt is more onerous to the debtor

To what debt should the payment be applied? To all of them proportionately.

SUBSECTION 2 – Payment by Cession

ART 1255 The debtor may cede or assign his property to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by special laws.

Meaning of payment by cession

Payment by cession is another special form of payment. It is the assignment or abandonment of all the
properties of the debtor for the benefit of his creditors in order that the latter may sell the same and apply
the proceeds thereof to the satisfaction of their credits
Requisites of payment be cession

They are:

1. There must be two (2) or more creditors;

2. The debtor must be (partially) insolvent;
3. The assignment must involve all the properties of the debtor; and
4. The cession must be accepted by the creditors

Effect of payment be cession

Unless there is a stipulation to the contrary, the assignment does not make the creditors the owners of
the property of the debtor and the debtor is released from his obligation only up to the net proceeds of
the sale of the property assigned. In other words, the debtor is still liable if there is balance

EXMAPLE

D is indebted to several creditors in the total amount of P2 million. His assets are not enough to pay all
his debts

With the consent of his creditor, D may assign his property to them to be sold, to satisfy their credits. It
the net proceeds of the sale amount only to P1.5 million, D is still liable for the balance of P500,000 unless
there is a stipulation that the assignment shall be in full satisfaction of all his debts

Dation in payment and cession distinguished

The differences are:

1. In dation, there is usually only one (1) creditor, while in cession, there are several creditors;
2. Dations does not presuppose the insolvency of the debtor, which in cession, the debtor is
insolvent at the time of assignment.
3. Dation does not involve all the property of the debtor, while cession extends to all the property
of the debtor subject to execution;
4. In dation, the creditor become the owner of the thing given by the debtor, which in cession, the
creditors only acquire the right to sell the thing and apply the proceeds to their creditors
proportionately; and
5. Dation is really an act of novation, while in cession it is not an act of novation

Both are substitute forms of payment or performance

SUBSECTION 3 – Tender of payment and Consignation

ART 1256 If the creditor to whom tender of payment has been refused without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the thing or sum due

Consignation alone shall produce the same effect in the following cases

1. When the creditor is absent or unknown, or does not appear at the place of payment;
2. When he is incapacitated to receive the payment at the time it is due;
3. When without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect;
 5. When the title of the obligation has been lost

Meaning of “tender of payment” and “consignation”

1. Tender of payment is the act, on the part of the debtor, of offering to the creditor the thing or
amount due. The debtor must show that he has in his possession the thing or money to be
delivered at the time of the offer.
2. Consignation is the act of depositing the thing or amount due with the proper court when the
creditor or amount due with the proper court when the creditor does not desire or cannot receive
it, after complying with the formalities required by law. Consignation is applicable when there is
a debt or an obligation to pay. It is always judicial and it generally requires a prior tender of
payment which is, by its very nature, extrajudicial.

Requisites of a valid consignation

In order that the debtor may be released from the obligation by the consignation of the thing or sum due,
the following requisites must be observed:

1. Existence of a valid debt which is due

2. Tender of payment by the debtor and refusal without justifiable reason by the creditor at accept
it
3. Previous notice of consignation to persons interested in the fulfillment of the obligation
4. Consignation of the thing or sum due; and
5. Subsequent notice of consignation made to the interested parties

EXAMPLES

1. D owes C a sum of money. On the due date of the obligation, D offers to pay the obligation but C
refuses to accept the payment without any justifiable reason

In this case, D’s obligation will not be extinguished until he has made a valid consignation. The
refusal by C to accept the offer to pay without just case will not have the effect of payment but D
will be relieved from payment of any interest from the date of tender.

2. D entered into contract with C. D is given the right to cancel the contract upon payment of P10,000
to C.
In this case, D has no existing debt to C. The amount of P10,000 is not owed by D, being merely
the consideration for the exercise of his right to cancel the contract. Hence, consignation of the
P10,000 is not necessary. Tender od payment in good faith is sufficient to entitle D to cancellation

When tender of payment not required

In the five cases mentioned in the second paragraph of Article 1256, tender of payment is not necessary
before the debtor can consign the thing due with the court.

It has been held that a creditor who, without legal justification, informs his debtor that payment of a debt
will not be accepted thereby waives payment on the date when the payment will be due; as a
consequence the debtor is, in such case, excused from making a formal tender of the money in such date.
A debtor does not incur default by failing to make fruitless tender after notification from the creditor that
the money will not be received.
Requirements for valid tender of payment

1. Tender of payment must comply with the rules on the payment or with the terms required by the
contract in making such tender. The tender, even if valid, does not by itself produce legal payment,
unless it is completed by consignation;
2. It must be unconditional and for the whole amount due and in legal tender; and
3. It must be actually made. The manifestation of a mere desire or intention to pay is not enough.
The debtor must show present ability to perform by an actual offer od the thing or money due

ART 1257 In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment

Prior notice to persons interested required

In the absence or prior notice to the persons interested in the fulfillment of the obligation (such as
guarantors, mortgagees, solidary debtors, solidary creditors), the consignation, ay payment, shall be void.

The purpose of the notice is to give the creditor a chance to reflect on his previous refusal to accept
payment considering that the expenses of consignation shall be charged against him and that in case of
loss of the thing consigned, he shall bear the risk thereof

Consignation must comply with provisions on payment

Consignation to amount to a valid payment must also comply with the provisions which regulate payment.
(par 2; see ARTS 1233, 1239, 1244, 1246, 1248, 1249, 1253)

One of these rules is that payment should be made in legal tender. The general rule is that an offer of a
bank check for the amount due is not a good tender and this is true even though the check is certified or
is a manager’s check, except where no objection is made on the ground