z

SECTION 1.
Payment or
Performance
z

Article 1232. Payment means

not only the delivery of money but
also the performance, in any other
manner, of an obligation. 
 z

This Article manifested that the different ways

of payment of an obligation is through delivery
of money or performance of obligation in any
manner.
Payment may consist of not only in the delivery
of money but also the giving of a thing (other
than money), the doing of an act, or not doing
of an act. 
z

Example:
 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.
z
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.
 z

A debt may refer to an obligation to deliver

money, to deliver a thing (other than money), to
do an act or not to do an act.
It must be on the currency agreed on, and in the
time and place stipulated. The thing delivered or
service rendered must be exactly that which was
the object of negotiation.
 z

Example:  James promised to pay P1,500.00 to Mr.

Mark for a Bulb. James is only giving P1,000.00 to Mr.
Mark. Mr. Mark can refuse to accept the P1,000.00
because the fulfillment is not complete.
z

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. 
 z

There is substantial compliance by the debtor when in

good faith he has attempted to perform the contract or
prestation but through excusable neglect or oversight,
he failed to make full and complete performance for
which the other party may be indemnified.
If there is substantial compliance the obligor may
recover as though there has been complete fulfillment
minus the amount of damages suffered by the obligee.
 z

Chris obliged himself to sell one thousand (1,000) bags of

cement to Bert for a certain price. However, despite diligent
effort on his part, Chris was able to deliver only nine
hundred fifty bags (950) because of the cement shortage.
Chris wants to comply with his obligation to deliver the
entire obligation but he could not do so for reasons beyond
his control.
z

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. 
 NOTE: In case of acceptance, the law considers that
z
the creditor waives his right under the principle of
estoppel. The whole obligation is extinguished
Article 1235 NCC | speaks of…
Requisites:

1. The obligee knows that the performance is incomplete or irregular.

NOTE: If payment is incomplete/irregular, the creditor may properly reject it.

2. He accepts the performance without expressing any protest or

objection.

NOTE: Mere receipt of partial payment is NOT equivalent to

acceptance of performance by the creditor.
 z

Form of protest
 NO particular manner or time required for protest or
objection
 So long as the acts of the creditor evince that he/she
is NOT satisfied to debtor’s payment/performance,
the obligation shall NOT be deemed extinguished.
Articlez 1235 NCC | examples:

A availed of B’s services to stencil the name of his business on

3000 pcs of rosary for donation using a particular font size. B
delivers the 3000 pcs of rosary with the stencil on each BUT using
a different font style. A received the rosaries and distributed them
to the donees. Obligation is extinguised.

A availed of C’s services to renovate his house for the purpose of

making it soundproof. B renovated the house but the
soundproofing was NOT effective. A texted B that he is NOT
satisfied with the latter’s work. Obligation is NOT fully
extinguished.
 z
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. 
 z

Exceptions
 If there is a stipulation that the creditor shall accept the
payment made by a third person;
 If the third person has an interest in the fulfilment of an
obligation such as the interest of a surety, a guarantor or
a mortgagee.
 z

 If the third person pays for the obligation of the

debtor with the knowledge and consent of the latter,
the payor is entitled to be reimbursed for the full
amount.
 If the third person pays for the obligation with the
knowledge of the debtor and does not object thereto
at any time, the latter must pay the amount
advanced by the former.
 z

 If the payment was made without the knowledge of

or against the will of the debtor, the reimbursement
shall only be up to the amount or extent by which
the  debtor was benefited.
 If the debt had already prescribed or had been
compensated, the payor is not entitled to
reimbursement from the debtor.
 z

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. 
Right of zthird person to subrogation.
 Whoever pays on behalf of the debtor is entitled to subrogation if the
payment is with the consent of the latter. (Arts. 1237, 1302[2].) If the
payment is without the knowledge or against the will of the debtor,
the third person cannot compel the creditor to subrogate him in the
latter’s accessory rights of mortgage, guaranty, or penalty.
 May there be subrogation, if the creditor willingly permits the payor to
be subrogated in his rights? Since the provision of Article 1237 is for
the benefit of the debtor, the subrogation can only take place with his
consent. The third person who without necessity paid under such
condition is amply protected by his right to reimbursement.
 z
Subrogation and reimbursement distinguished.
1. In subrogation, the person who pays for the debtor is
put into the shoes of the creditor. The payor acquires
not only the right to be reimbursed for he has paid but
also all other rights which the creditor could have
exercised pertaining to the credit either against the
debtor or against third persons, be they guarantors or
possessor of mortgages.
 z

2. In reimbursement, the third person entitled by the

reason of payment has merely by the bare right to be
refunded to the extent provided in the second
paragraph of Article1236 without the right of the
guarantees and securities of the original obligation. In
subrogation, there is no real extinction of the
obligation, but only a change of creditor.
Illustration
z
 Kris borrowed from Gretchen P1,000.00. Bob is the guarantor. Without the
knowledge or consent of Kris, Pen paid Gretchen P1,000.00. In this case, Pen
can claim reimbursement from Kris for the whole amount of P1,000.00 inasmuch
as Kris was benefited up to that amount.

 If Kris cannot pay Pen, the latter cannot proceed against Bob, the guarantor
(even if Gretchen is willing) because, having paid without the consent of Kris,
Pen is not entitled to subrogation. But if the payment was with the express or tacit
approval of Kris, Pen would be entitled not merely to full reimbursement but also
to subrogation.

 Suppose the obligation of Kris is secured by a mortgage of a land owned by her.

Payment by Pen without the knowledge or against the will of Kris, cannot give
Pen the right to foreclose the mortgage because he has no right to subrogation.
Pen can recover only insofar as the payment has been beneficial to Kris.
 z

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.
 z

Payment by a third person who does not intend to be

reimbursed.
Article 1238 “embodies the idea that no one should be
compelled to accept the generosity of another.” If the paying third
person does not intend to be reimbursed the payment is deemed
a donation which requires the debtor’s consent to be valid.
However, if the creditor accepts the payment, it shall be valid as
to him and the payor although the debtor did not give his consent
to the donation.
 z
EXAMPLE

Cardo owes Alice P1,000.00. Without the intention of being reimbursed,

Nena paid Cardo’s obligation. Cardo had previously accepted Nena’s
generosity. In this case, Cardo is not liable to Nena and his obligation to
Alice is extinguished. But if Cardo did not consent to the donation, Nena
may recover from Cardo since there has been no donation, although
originally Cardo did not intend to be reimbursed. Nevertheless, the
obligation of Cardo to Alice is extinguished because the payment is valid
as to Alice who has accepted it.
z

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.”
 z
Meaning of “free disposal of thing due”
and “capacity to alienate.”

1. 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.
2. 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.
 z

Free disposal of a thing due and capacity to

alienate required

As a general rule, in obligations to give, payment by

one who does have the free disposition of the thing
due and capacity to alienate is not valid. This means
that the thing paid can recovered.
 z

Example:

If A, an incapacitated person, made payment to B who was

unaware of the former’s incapacity in the amount of P 1000,
75% of which B spent for his life and living, how much can A’s
parents recover from B?

Only P 250 (the remaining 25%). B made use of the P 750

under the innocent faith that A is capacitated.
 z

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 receive it.
 z

To Whom payment Must Be made

a. To the person in whose favor the obligation has
been constituted (the creditor);
b. to the successor-in-interest (like the heirs); or
c. to any person authorized to receive it.
 z

FACTS: D owed C. Instead of paying C, D deposited the money

in a bank in the name and for the credit of C. All these were
done without C’s permission.

ISSUE: Has the debt been extinguished?

HELD: No. But if after efforts had been made, the creditor could
not be found, particularly at the place were payment is supposed
to be made, the debtor cannot be held guilty of default.
 z

Example:

D owes C P1,000,000. In this case, D must pay C or any person

authorized by C or in case of his death, his heirs or any person
authorized by law. Payment to any person is not valid except AS
PROVIDED IN Article 1241, paragraph 2.

D is acted in good faith in paying to the wrong party is not an

excuse.
 z
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
 z

Article 1241. Payment to a person who

is incapacitated to administer his property
shall be valid if he has kept the thing
delivered, or insofar as the payment has
been beneficial to him.
Paymentzmade 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) 
Payment made to the Incapacitated Creditor, Effects
z
 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 a new
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 released from his
obligation by virtue of payment.

 During the creditor is incapacitated and to cannot administer his own

property, should be given to his legal representative, if there is none the
debtor may consign the thing in the court.
 z
Example
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. 
 z
Effect of payment to a third person
Payment to a third person or wrong party is not valid except
insofar as it has redounded to the benefit of the creditor.
The creditor has benefitted by the payment made by the
debtor to a third person is not presumed and must therefore,
be satisfactorily established by the person interested in
proving this fact. In the absence of such proof, the payment
thereof in error and in good faith will not deprive the creditor of
his right to demand payment. (Panganiban vs. Cuevas, 7 Phil.
447.)
 z
When benefit to creditor need not to be proved by
debtor.
But the debtor is relieved from proving benefit to the creditor in case of:

1. Subrogation of the payer in the creditor’s rights;

2. Ratification by the creditor; or

3. Estoppel on the part of the creditor

In such cases, the benefit to the creditor is to be presumed. Through

estoppel, an admission or representation is rendered conclusive upon
the person making it and cannot be denied or disproved as against the
person relying thereon.
 z

Article 1242. Payment made in good

faith to any person in possession of the
credit shall release the debtor.

This law is intended to protect the

debtor from being required to pay again
the payee.
Possession
z 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. For 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
z of credit means an actual and legal relation
between the credit and the possessor of the document. For
example, an instrument payable to bearer is held by the person
to whom it is intended.
Example:
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.
 z

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.(1165)
 z
When payment to creditor not valid.
In action against the debtor who is the creditor of
another, the latter during the pendency of the case, may
be ordered by the court to retain the dept until the right of
the plaintiff, the creditor in the main litigation is resolved.
Payment made subsequently by the debtor-stranger
shall not be valid if the plaintiff wins and cannot collect
from the debtor to whom the payment is made. Such
payment is considered as made in bad faith.
 z

Article 1244. The debtor of a thing cannot

compel the creditor to receive a different one,
although the latter may be at 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)
 z
Very prestation due must be complied with. When prestation may be substituted.

1. The first paragraph refers to a real Substitutions can be made if the

obligation to deliver a soecific thing. A thing obligee consents. In facultative obligation,
different from that due cannot be offered or the debtor is given the right to render
demanded againts the will of the creditor or another prestation in substitution.
debtor, as the case may be.

Article 1244 may not also apply in case

2. The second paragraph refers to of waiver by the creditor or substitution is
personal(positive and negative) allowed by stipulation with the consent of
obligations. The act to be perform or the the creditor.
act probihited cannot be substituted
againts the obligee's will.
 z

Example:
A obliged himself to deliver to deliver B a sack of
rice. A cannot require B to accept another sack of
rice although it commands a higher price, neither
can B require A to deliver another sack of rice
belonging A although it can be sold at lower price.
 z

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.
 z

SPECIAL FORMS OF PAYMENT

1. Dation in payment.(Art.1245)
2. Application of payment.(Art.1253)
3. Payment by cession.(Art.1255)
4. Tender of payment and consignation.(Art.1257-1261)
 z
DATION IN PAYMENT

Dation in payment is the conveyance of ownership of a

thing as an accepted equivalent of performance. It is a special
form of payment because it is not the ordinary way of
extinguishing an obligation.

GOVERNING LAW

The law of sales govern s because dation in payment may

be considered a specie of sale in which the amount of the
money dept becomes the price of the thing alienated.
 z

Example:

K owes A P15,000. To fulfill the obligation K with the consent

of A deliver a horse.

If the horse is worth less than P15,000, the

conveyance must be deemed to extinguished the obligation to
the extent only of the value agreed upon unless the parties by
their agreement have considered the horse as the full payment.
In which case the obligation is totally extinguished.
 z

Article 1246. When the obligation consists in

the delivery of an indeterminate or generic
thing, whose quality ang circumstances have
not been stated, the creditor cannot demand a
thing of superior quality. The purpose of the
obligation and other circumstances shall be
taken into consideration.(1167a)
RULE OF
z THE MEDIUM QUALITY
If the obligation consists in the delivery of a specific thing, the
very thing due must be delivered. If the obligation is to deliver a
generic thing , the purpose of the obligation and the other
circumstances shall be taken into consideration to determine the
quality or kind of thing to be delivered.

Article 1246 is a principle of equity in that it supplies justice in

cases where there is lack of precise declaration in the obligation. The
benefit of this article may be waived by the creditor or by accepting a
thing of inferior quality and by the debtor by delivering a thing superior
quality.
 z

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.
 z

GENERAL RULE: The debtor has to pay for the

extrajudicial expenses incurred during the payment. It is
the debtor who benefits primarily, since his obligation is
thus extinguished.

EXCEPTION: When there is a stipulation to the

contrary.
DEBTOR
z PAYS FOR EXTRAJUDICIAL EXPENSES
The extrajudicial expenses of payment are for the
account of the debtor. The reason is that the obligation is
extinguished when payment is made and it is, therefore,
the debtor who is primarily benefited.
If the parties have made a stipulation as to who will
bear the expenses, then their stipulation shall be followed.
Article 1247 does not apply to expenses incurred by the
creditor in going to the debtor’s domicile to collect. (Art.
1251.)
 z
LOSING PARTY GENERALLY PAY JUDICIAL COSTS

Judicial costs are the statutory amounts allowed to a party to

an action for his expenses incurred in the action. Under the
Rules of Court (Sec. 1, Rule 142.), the costs of an action shall,
as a rule, be paid by the losing 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.

No costs are allowed against the Government, unless

otherwise provided by law.
ILLUSTRATION:
z
ATTY. HULK

CAPTAIN AMERICA IRON MAN

 z
Captain America is the owner of an apartment entered into
a  lease agreement with Iron Man for the amount of PHP 10,
000 to be paid every 5th of the month. Upon payment of the
amount every 5th of the month, it is the debtor who benefits
primarily, since his obligation is extinguished.

But let’s say for example, Iron Man failed to make the
payment for 4 months despite oral demands. Captain America
wish to have Iron Man vacate the property and collect the
unpaid rental fee.  
 z

He then seek  the service of Atty. Hulk and paid a fee of P

5, 000.00 . Two (2)  demand letters sent via registered mail
and incurred P 350.00 for such. Later on, Iron Man, 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.
 z
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. 
 z

Performance of obligation should be complete.

In order that payment may extinguish an obligation, it is
necessary that there, be complete performance of the
prestation. 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.
 z
When partial performance allowed.

There are cases, however, when partial performance may be either

required or instead. Among these cases are;

1. When there is an express stipulation to that effect.

2. When the debt is in part liquidated and in part unliquidated.

3. When the different prestations in which the obligation consist are the
subject to different terms and conditions which affect some of them.
In obligation which comprehend several distinct prestation, it is
evident that the prestation need not be executed simultaneously
but each successive execution thereof must be complete.
 z
 Illustrations:

Apple obligated himself to finish the construction of the house of Bilbo

with eight bed rooms within a period of eight months. Apple cannot
compel Bilbo to receive the house where only four bed rooms had been
finished, unless Bilbo agrees thereto.

Conversely Apple cannot be compelled by Bilbo to finish the eight bed

rooms part by part at sparsely divided periods, because the interruptions
in the construction may adversely affect the efficiency and convenience of
the contractors. His workers may be engaged by other contractors during
the interim periods and he may not be able to pull them out immediately
when he needs them for the continuation of the construction.
 z

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 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 the abeyance. 
 z

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
though the fault of the creditor they have been impaired.

In the meantime, the action derived from the original

obligation shall be held in abeyance.

Legal Tender- It is that which a debtor may compel a creditor

to accept in payment of the debt (whether public or private)
 z
De Asis Versus Buenviaje, et. al.

Facts: Aby sold Danilo some properties during the Japanese occupation. Aby
received war notes as payment. After liberation, Aby sought to recover the
properties on ground that the money paid to him was worthless.

Issue: Is Aby correct?

Held: Aby is not correct. Because Aby willingly sold said properties and
benefited with the use of the purchase money, he cannot now, on the ground,
attack the validity of the sale. The Japanese war notes were legal tender during
the occupation and in March 1943, when the sale in question was made, they
were at par with Philippine currency. Those who sold their properties then and
voluntarily accepted said notes in payment thereof have to suffer the
consequences when the notes depreciated in value  or became worthless.
Mondejarz versus Nicolo

(When emergency notes ceased to be Legal Tender)

Facts: Bing was a sub-lessor, and Sony, a sub-lessee. In payment of

rentals, Sony was paying Bing “emergency notes” but since Bing did not
want to accept, Sony deposited the money with the Municipal Treasurer’s
Office on April 7, 1945. It was proved, however, that on said date, the
emergency notes were no longer legal tender.

Issue: Was the deposit in the office equivalent to payment?

Held: No, said deposit was not equivalent to payment because at that
time, the ‘emergency notes’ were no longer legal tender. They were good
only up to November 18, 1944 by virtue of EO 25.
 z

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. 
 z
The inflation or deflation in this case must be
extraordinary, meaning it is not a universal trend which did
not spare the country.
Extraordinary inflation exists when there is a decrease or
increase in the purchasing power of the Philippine currency
which is unusual of beyond the common fluctuation on the
valued of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation.
 z
Meaning of inflation and deflation
1. Inflation is a sharp sudden increase of money or
credit or both without a corresponding increase in
business transaction. Inflation causes a drop in the
value of money, resulting in 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.
 z

EXAMPLE
D borrowed from C P5,000.00 payable after
five (5) years. On the maturity of the obligation,
the value of P5,000.00 dropped to P2,500.00
because of inflation (or increased to P10,000.00
because of deflation).
 z
In this case (assuming there is extraordinary inflation or
deflation), the basis of payment shall be the equivalent value of
the currency today to that five (5) years ago. Hence, D is liable to
pay B P10,000.00 (or P2,500.00) unless there is an agreement to
the contrary, e.g., that D shall pay C P5,000.00 regardless of any
extraordinary decrease or increase in the purchasing power of the
peso.

Note: The provision of Article 1250 requires for its application a

declaration of inflation or deflation by the Central Bank. Without
such declaration, creditors cannot demand an increase, and
debtors, a decrease of what is due to or from them.
 Articlez 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 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 venue under the Rules of

Court. 
 z

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

instituted.

Domicile is the place of the 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 of returning.

Residence is only an element of domicile. It simple requires

bodily presence as an inhabitant in a given place.
 z

Example
Mikibihon obliged himself to deliver to Pancitulit a
specific pack of noodle. It was agreed that the noodle
shall be delivered at Pancitulit’s house. The house of
Pancitulit shall be the place of delivery.
z
z
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 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.
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Meaning of application of payment

 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 of the
same creditor.
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Requisites of application of payments
 1 debtor and 1 creditor

 2 or more debts

 Debts must be same kind

 Debts to which payment made by the debtor has

been applied must be due.

 The payment made must not be sufficient to cover all

the debts.
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Rules on application of payments

 Debtor has the first choice. He must indicate the at the

time of making payment, not afterwards , which
particular debt is being paid.

 The right to make the application once excercised is

irrevocable unless the creditor consent the change.

 If debtor does not apply payment, the creditor may

make designation by specifying in receipt which is being
paid.
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Rules on application of payments

 If the creditor has not also made the application the

debt, which is most onerous 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.
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Examples: D owes C as follows

A.1,500 payable on September 5

B.1,200 payable on September 20

C.A specific transistor radio worth 2,000 to be delivered

on September 20; and

D.1,000 payable on October 15.

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Examples:

 On September 20, D  If D paid only 1,000 he

paid C 1,500. D may cannot choose to apply
apply the 1,500 to his his payment to 1,500
debt (A) or to debt (B) debt because C cannot
and if C does not object be compelled to receive
to a portion of debt (A) partial payment.
(Art1248)
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An application of payment made by
the debtor without objection from
creditor is binding upon the latter.
 If D does not make a  If C does not make the
choice, C can make the application in the
designation in the receipt or no receipt is
receipt with consent of issued, then the legal
D. But D haa the liberty rules in Article 1254 will
to reject also. govern.
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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)

 The debtor cannot choose to credit his payment to the principal

before the interest is paid. The payment applied first to the to the
interest and whatever balance is left can be credited to principal
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Example:

 D owes C 10,000 with 1,000 as accrued interest. D

pays C 10,000.

 10,000 will first be applied to the interest. The

balance of 9,000 will be credited to the amount.
Therefore, D still owe C 1,000 of the principal.
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Article 1254

 When the payment cannot be applied in accordance

with the preceding rules, or if application can not 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. (1174a)
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When debt is more onerous than
another
When it is more burdensome to the debtor.

1. An interest- bearing than non interest-bearing even if is an

older one.

2. Sole debtor than as a soliditary debtor.

3. Debts secured by mortgage or pledge than unsecured debts.

4. A debt with a higher rate

5. An obligation with penalty clause.

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Article 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.
(1175a)
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Payment by cession

 Payment by Cession is another special

form of payment.It is assignment and
abandonment of all the properties to the
creditors in order that the creditor may sell
it and apply the proceeds to the
satisfaction of their credits.
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Requisites of payment by cession

1. Two or more creditors.

2. Debtor must be (partially) insolvent.

3. Assignment must involve all the properties of the

debtor.

4. Cession must be accepted by the creditors.

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Effect of payment by cession
The debtor is still liable if there is a balance

Example:

D is indebited to several creditors in total amount

of P 2 million. His assests are sold and the net
proceeds of the sale amount only P1.5 million. D
still liable for the balance of 500,000 unless there is
a stipulation that the assignment shall be in full
satisfaction of all his debts
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Dation in payment

1. In dation there is usually only one creditor (Art 1245).

2. Does not presuppose the insolvency of the debtor.

3. Does not involve all the property of the debtor.

4. The creditor becomes the owner of the given property

by debtor.

5. Is really an act of novation (Art. 1291)

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GROUP 1
Aguila, Kyla
Balbuena, Melissa
Esguerra, Joyce Anne
Liwag, Christian Mark
Magadia, Abegail
Marasigan, Christian Jahzeel
Nuyda, Joyce Camile