ARTS.

1231-1304

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

(7) other causes annulment, rescission, fulfillment of a

resolutory condition, and prescription

Death of a party in case the obligation is

personal

Mutual desistance

Compromise

Impossibility of fulfillment

Happening of a fortuitous event

CONCEPT: Fulfillment of prestation due

Valid payment/performance:

1. person who pays

2. person to whom payment is made

3. thing to be paid

4. manner, time and place of payment

Payment means:

a. delivery of money

b. performance of an obligation.

The thing or service in which the obligation

consists has been completely delivered or
rendered

Substantial performance

Good faith

Less damages

without expressing any protest or objection,

the obligation is deemed fully complied with.

Debtor (Art. 1236; 1237)

Any person who has an interest in the

obligation (guarantor) ( Art. 1236; 1237)

A third person stipulated (Art. 1236; 1238)

If the debtor judicially ordered to retain the

debt

PAYER

PAYEE

THINGS TO BE PAID

Debtor
Person in interest in
the obligation
rd
3 person stipulated
(Art. 1236)

creditor/obligee;
successor in interest;
authorized person
(Art. 1240)
rd
3 person in
possession of the
credit (Art. 1242)
Payee pays
extrajudicial expenses
(Art. 1247)

Free disposal of
the thing due and
capacity to
alienate (Art.
1239)
Debts in money be
paid in currency/
legal tender (Art.
1249)

MANNER/TIME/
PLACE OF PAYMENT

-Complete delivery/
rendition (Art.
1233;1248)
Special forms of
payments (Arts. 1245,
1251, 1255,1256-1261)
Designated place of
payment (Art. 1251)

Place of Payment (Art. 1251)

RULES:
1. Stipulated place
2. with stipulation and specific thing at the place where the
thing was a the perfection of the contract
3. no stipulation and generic thing at domicile of the debtor
Venue vs. domicile

Interest earned vs. Principal (Art. 1253)

Mandatory rule: interest earned must be paid ahead of
principal

Payment in Currency/ Legal Tender (Art. 1249)

Rules:
1.Currency stipulated
2.Legal tender in the Philippines
3.Negotiable/mercantile instruments effect of
payment only: (a) after they have been
cashed; or (b) impaired by creditors fault

Effect of inflation/deflation (Art. 1250)

Inflation sharp sudden increase of money/credit without
increase of business transactions

Deflation- reduction in volume and circulation of money

Extraordinary inflation/deflation - basis of payment
is value of the currency at the time of the establishment of the
obligation, except if there is an agreement to the contrary

On payment or performance
rd
3

person/
Subrogation right available to the
payor, not only to demand reimbursement from
the debtor but also to exercise all the rights
which the creditor could have exercised (like
mortgage, guaranty,penalty)
Reimbursement- personal action available to the
rd
3 person/payor against the debtor to recover
from the latter what he has paid insofar as the
payment has been beneficial to the debtor

On payment or performance

rd
Gratuitous payments- if made by a 3 person

without the intention to be reimbursed by the

debtor, presumption : donation
- consent of the debtor is required

On payment or performance
Payment to Incapacitated persons
- Valid if* (a) the incapacitated kept the amount
or the things paid/delivered
- (b) Insofar as the payment is beneficial to him
rd
Payment to 3 persons
- Valid* insofar as it redounded to benefit of the
creditor
*only in obligations to give

Special Forms of Payment

dation in payment/ dacion en pago (Art. 1245)
- conveyance of ownership of a thing as an accepted equivalent of performance

Application of payments (Art. 1251)

-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 the same creditor

Payment by cession (Art. 1255)

-assignment/abandonment of all properties of the debtor for the benefit of his creditors
Tender of payment and consignation (Art. 1256-1261)
- tender when debtor is offering to the creditor the thing or amount due
- consignation is the depositing the thing or amount due with the proper court when
the creditor does not desire to receive it

Dacion en pago/dation in
payment

Concept Delivery and transmission of ownership of

a thing by the debtor and to the creditor as an
accepted equivalent of the performance of the
obligation.

An onerous contract of alienation because object

is given in exchange of credit

Special form of payment because one element of

payment is missing: identity

Requisites:

a.) one debtor, one creditor

b.) 2 or more debts

c.) debts must be of the same kind

d.) applied debt is due

e. ) payment made is insufficient to cover all

debts

On application of payment
Time when right is exercised:
- Must be exercised by the debtor at the time
payment is made.
- If the debtor failed, creditor may exercise the
right

The right belongs to the debtor, but if he does not exercise it, creditor may do it

If creditor issues a receipt designating the debt to be applied, debtor can accept or reject

Where neither debtor nor creditor made a choice, it shall be applied on the debt which is
most onerous
1.

Older debts more onerous than newer ones

2. One bearing interest more onerous than one that is not

3. Secured debt more onerous than unsecured
4. Debt as principal more onerous than debt as guarantor
5. Solidary obligation more onerous than sole debtor
6. If similar nature and burden, payment shall be applied proportionately

Assignment or abandonment of all the properties of the debtor for

the benefit of his creditors in order that the latter may sell same and
apply proceeds thereof to debts

Requisites:
a. 2 or more creditors
b. debtor partially insolvent
c. cession accepted by the creditors

Tender of Payment

TThe act of offering the creditor what is due him together with a demand that
the creditor accept the same

When creditor refuses without just cause to accept payment, he is in mora

accipiendi and debtor is released from responsibility if he consigns the thing
due

Manifestation made by debtor to creditor of desire tocomply with obligation

Preparatory act to consignation; does not cause extinguishment of

obligation unless completed by consignation

Required ONLY when the creditor refuses without just cause to accept
payment

When creditor is absent or unknown or does not

appear at place of payment

When creditor is incapacitated to receive payment

When creditor refuses to give receipt, without just

cause

When two or more persons claim same right to

collect

When title of the obligation has been lost

Consignation

the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to
accept payment.

Generally requires prior tender of payment

Made by depositing the things due at the disposal of judicial

authority (includes sheriff)

Purpose:Avoid performance of an obligation becoming more

onerous to the debtor by reasons not imputable to him

Duty of attending indefinitely to its preservation, without

remedy to be relieved from the debt

Debt Due

Tender of payment by debtor and refusal by creditor to

accept it without justifiable reason

Previous notice of the consignation had been given to

persons interested in fulfillment of obligation

Thing or amount due has been deposited with judicial

authority

Subsequent notice of consignation to interested parties

On consignation
Movables and immovables are included
Effects:
(a)If creditor accepts the thing deposited, the
obligation is cancelled
(b)If creditor contests the validity of the
consignation, litigation will follow.

first be announced to the persons interested in

the fulfillment of the obligation (Art. 1257)

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 (Art. 1258)

expenses of consignation, when properly made,

shall be charged against the creditor (Art. 1259)

Lost when

perished,

go out of commerce

disappear in such a way that its existence

unknown or cannot be recovered

becomes legally or physically impossible to

perform, or so difficult as to be manifestly
beyond the contemplation of the parties

On loss of thing due

Analyze:
Brian is bound to deliver 50 heads of cattle
which will come from the Ausie & Brothers
Ranch in Mindoro to Karl. However, because of
epidemic, all of the cattle from the ranch was
wiped out. Is the obligation of Brian
extinguished by the loss of the thing due?

Without the fault of debtor and

Debtor not in delay

Take note of Art. 1263. In an obligation to

deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the
obligation.

1. Where expressly specified by law or stipulated in

contract

2. When nature of the obligation requires assumption of

risk

3. When debtor is at fault, partly

4. When debtor incurs delay

5. When debtor promises to deliver same thing to two or

more persons

6. When obligation to deliver arises from criminal offense

7. When obligation is generic

In case of partial loss the court shall determine

whether it is so important as to extinguish the
obligation

In case lost when the thing is in the possession

of debtor, presumption is it is his fault

Except earthquake, flood, storm or other natural calamity

Creditor shall have right to go against any

third person responsible for the loss.