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Finals Review Notes On Obligations & Contracts: Page - 1
Finals Review Notes On Obligations & Contracts: Page - 1
Payment – that mode of extinguishing obligations (The term “indebtedness” has been defined
which consists of: (a) the delivery of money; or (b) as an unconditional and legally enforceable
the performance in any other manner of an obligation for the payment of money. (CIR vs
obligation. Prieto, L-13912, Sept 30, 1960)
*A person who pays a PRE-EXISTING obligation. If 2. If the debt is the DELIVERY OF A THING, by
no such obligation exists, strictly speaking, there is delivery of the thing/s.
no payment.
3. If the debt is the DOING OF A PERSONAL
E.g. UNDERTAKING, by the performance of said
A was given the option to buy a car or not, within personal undertaking.
one week. Here, A has no duty to buy. But if he
decides to buy, an obligation is created and he must 4. If the debt is NOT DOING of something, by
pay. (Asturias Central vs Pure Cane Molasses Co., refraining from doing the action.
60 Phil 259)
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
A: No, a testimony does not constitute sufficient 2. When the obligee accepts the performance,
proof that the entire debt has been paid. (Javier vs knowing its incompleteness or irregularity,
Brinas (CA, 40 OG 4th Supp No. 8, p. 279) and without expressing any protest or
objection, the obligation is deemed fully
Art. 1234. If the obligation has been substantially complied with. (1235, NCC)
performed in good faith, the obligor may recover
as though there has been strict and complete E.g.
fulfillment, less damages suffered by the obligee. In their contract of sale, X obliged himself to deliver
10 tables to Y at P1,000 per table. Thereafter, X
Art. 1235. – When the obligee accepts the delivered nine (9) tables and was accepted by Y with
performance, knowing its incompleteness or knowledge that is incomplete. Y paid P9,000. The
irregularity, and without expressing any protest or obligation of X is extinguished.
objection, the obligation is deemed fully complied
with. E.g.
The buyer failed to pay the downpayment on time.
General Rule: PRINCIPLE OF INTEGRITY – A debt But the seller still accepted without objections, the
shall not be understood to have been paid unless delayed payment of the buyer. The obligation of the
the thing or service in which the obligation consists buyer is deemed complied with under Art 1235.
has been completely delivered or rendered, as the (Arra Realty Corporation, et al. vs Guarantee
case may be. Development Corporation, et al., GR No. 142310,
Sept 20, 2004)
EXCEPTIONS:
1. If the obligation has been substantially Accept – to take as satisfactory or sufficient, or
performed in good faith, the obligor may agree to an incomplete or irregular performance.
recover as though there had been a strict (Constante Amor de Castro vs CA, GR No. 115838,
and complete fulfillment, less damages Jul 18, 2002)
suffered by the obligee. (1234, NCC)
Qualified acceptance – There is a possibility or
E.g. objection can be made. Hence, there is what is
In their contract, X obliged himself to manufacture called qualified acceptance of incomplete or
and deliver 10 chairs for Y at P1,000 per chair. irregular payment. Mere receipt of partial payment is
However, due to lack of lumber because of the not equivalent to the required acceptance of
recent super typhoon, X only manufactured eight (8) performance as would extinguish the obligation.
chairs and delivered it to Y. In this case, X is
presumed to be in good faith; hence, he can recover Reason for Article 1235: Presence of waiver and
P8,000 [P10,000 (P1,000 x 10) – P2,000 (P1,000 x estoppel.
2)] only.
Art. 1236. – The creditor is not bound to accept
Substantial performance doctrine – The rule that is payment or performance by a third person who has
a good faith attempts to perform does not precisely no interest in the fulfillment of the obligation,
meet the terms of an agreement or statutory unless there is a stipulation to the contrary.
requirements, the performance will still be
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
Q1: May D recover from A? Reason why debtor has to consent – No one should
Q2: If so, how much? be compelled to accept the generosity of another.
Q3: If A cannot pay, may D proceed against the
guarantor C? E.g.
Q4: Suppose D pays B with the express or implied Z, a classmate of X, paid the latter’s obligation to Y
consent of A, what are the rights of D? in the amount of P3,000. Z intends that the payment
will be his gift to X by virtue of the latter’s birthday
A1: Yes, D may recover from A. two days ago. X consented to this donation.
A2: D can recover only P600k because this is the Q1: Is the obligation of X extinguished?
only amount which benefitted A. Remember that
previously, P400k had been paid, leaving a balance Q2: If X did not consent, but Z still paid the
of P600k only. obligation of X without an intention to be
reimbursed, may Z still recover from X?
A3: If A cannot pay D, D cannot ordinarily proceed
against the guarantor C because D, having paid A1: Yes, the obligation of X is extinguished.
against the will of A, is not entitled to subrogation. Payment is valid. There is also no right to reimburse
Z because there is lack of intention to be
A4: D would be entitled not merely to full reimbursed. (Art 1238)
reimbursement but also to subrogation, or the right
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
A2: Yes, Z may still recover from X because there is Art. 1240. – Payment shall be made to the person
no consent on the part of X. Under Art. 1238, even in whose favor the obligation has been constituted,
if the stranger does not intend to be reimbursed, or his successor in interest, or any person
debtor’s consent is required for the payment by a authorized to receive it.
stranger to be deemed as a donation; thus, not
giving rise to a right to be reimbursed. Absent TO WHOM PAYMENT MUST BE MADE
consent, the obligation to reimburse stranger is not 1. To the person in whose favor the obligation
disposed of. All that can be recovered by Z is the has been constituted (the creditor)
extent that X has benefitted. With regard to the - This refers to the creditors at the time of
payment by Z to Y is concerned, the same is valid. payment, not the original creditor at the
time the obligation was constituted.
Art. 1239. – In obligations to give, payment made
by one who does not have the free disposal of the 2. To the successor-in-interest (like heirs)
thing due and capacity to alienate it shall not be
valid, without prejudice to the provisions of Article 3. To any person authorized to receive it.
1427 under the Title on “Natural Obligations.” - Authorization may be by agreement or by
law
PAYMENT BY INCAPACITATED PERSON - If the recipient was not authorized, the
GR: If person paying has no capacity to give: payment generally is NOT valid, without
a. Payment is not valid – if accepted prejudice to Art. 1241. (Keeler Electric
b. Creditor cannot even be compelled to accept Co vs Rodriguez, 44 Phil 19)
it
c. Remedy of consignation would not be proper Harry E. Keeler Electric Co. vs Rodriguez
44 Phil 19
EXCEPTION:
Art 1427 – When a minor xxx who has entered into FACTS: Rodriguez owed the company a certain
a contract without the consent of the parents or amount of money. A certain Montelibano
guardian voluntarily pays a sum of money or approached Rodriguez and claimed that he
delivers a fungible thing in fulfillment of the (Montelibano) was duly authorized to receive
obligation, there shall be no right to recover the payment for the company. Without making any
same from the obligee who has spent or consumed verification, Rodriguez paid Montelibano. Later, the
it IN GOOD FAITH. company sued Rodriguez for payment of debt.
Rodriguez presented the defense that he had
EXCEPTION TO THE EXCEPTION: (Paras) already paid his debt to Montelibano who was not
Art. 1241 (by analogy) authorized to receive payment.
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
payment does not prejudice the creditor, and has kept the thing delivered. Hence, A’s payment is
accrual of interest is not suspended by it. (Allied valid.
Banking Corp vs Lim Sio Wan, et al., GR No.
133179, Mar 27, 2008) Q3: In Q2, suppose that the swindler had asked B
for P1M in exchange for a ring worth P600k, does
Art. 1241. – Payment to a person who is A’s payment to B remain valid?
incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar A3: A’s payment to B remains valid only up to the
as the payment has been beneficial to him. extent of P400k because this is the only amount
which B really benefitted from A’s payment to him.
Payment made to a third person shall also be valid A’s payment is thus valid only insofar as the
insofar as it has redounded to the benefit of the payment has benefitted the incapacitated payee.
creditor. Such benefit to the creditor need not be
proved in the following cases: Q4: Who has the burden of proving that the
payment has benefitted the incapacitated payee?
(1) If after the payment, the third person
acquires the creditor’s rights; A4: The one who made the payment has the burden
of proving that it benefitted the incapacitated payee.
(2) If the creditor ratifies the payment to the (Panganiban vs Cuevas, 7 Phil 477). The benefit
third person; may be financial, moral or intellectual but it must be
proved.
(3) If by the creditor’s conduct, the debtor has
been led to believe that the third person Q5: In proving that the incapacitated payee really
had authority to receive the payment. benefitted from the payment, is it necessary for the
payor to prove that the payee invested the thing or
*First paragraph deals with payment to an money delivered in some profitable enterprise?
INCAPACITATED person. Second paragraph deals
with payment to an UNAUTHORIZED third person. A5: No, proof of investment is not necessary. All
that is needed is proof that payment to the
Generally, payment to an incapacitated person is not incapacitated payee has in some way or another
valid. However, payment to a third person who is redounded to the benefit of the payee. Example is
incapacitated to administer his property shall be when the money was used for proper hospital or
valid if he has kept the thing delivered, or insofar as psychiatric expenses.
the payment has been beneficial to him.
Q6: If indeed there has been no benefit, what is the
FIRST PARAGRAPH remedy?
Q1: Is payment to a third person incapacitated to
manage or administer his property valid? A6: The payment is not valid; therefore, the legal
representative of the incapacitated person can
A1: Generally, not valid, EXCEPT: demand a new payment on behalf of his war. The
a. If the incapacitated person has kept the thing ward himself, should he regain capacity, is allowed
delivered, or to claim a new payment.
b. Insofar as the payment has been beneficial
to him. SECOND PARAGRAPH
Payment is valid BUT only to the extent of benefit
Q2: A owes B P1M. When A paid B, the latter was (financial, moral or intellectual) to the creditor. The
already insane. However, the money was never payment must be proved, and is therefore, not
spent, and is still in the possession of B. Is A’s presumed except in the three instances provided for
obligation extinguished? in the second paragraph of Art. 1241.
A2: Yes, A’s obligation is already extinguished by Benefit to the creditor is presumed in the following
virtue of A’s payment to B. True, B was cases:
incapacitated to administer his own property, yet B 1. SUBROGATION – If after payment, the third
person acquires the creditor’s rights
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
3. ESTOPPEL – If by the creditor’s conduct, the Preliminary attachment – provisional remedy issued
debtor has been led to make the payment. upon order of the court where an order is pending
to levy upon the property of the defendant, the
E.g. When the impostor-agent had been given by the same to be held thereafter by the sheriff as security
MERALCO the usual uniform for collectors. for the satisfaction of whatever judgment might be
secured in said action by the attaching creditor
Art. 1242. – Payment made in good faith to any against the defendant.
person in possession of the credit shall release the
debtor. Preliminary injunction – Order granted at any stage
of an action or proceeding prior to the judgment or
Article 1242 is another exception to the general rule final order, requiring a party or a court, agency or a
that payment to an unauthorize person is not valid. person to refrain from a particular act.
2. Payee must be in possession of the credit Art. 1244. – The debtor of a thing cannot compel
itself, not merely the document evidencing the creditor to receive a different one, although the
credit latter may be of the same value as, or more
valuable than that which is due.
When one possesses the credit, there is
colorable title to it. In obligations to do or not to do, an act or
forbearance cannot be substituted by another act
Examples of a person in possession of credit: or forbearance against the obligee’s will.
1. X found a negotiable promissory note
payable to bearer. If the maker thereof pays *Creditor cannot compel creditor to accept a
in good faith to X, the debt is extinguished different object.
even if X was not entitled to it.
E.g.
Q: What if the promissory note was payable to a A is obliged to give B a Jaguar car. Not having any
specific person, Y, is the payment to X valid? Jaguar car, A wants B to accept a Rolls Royce, a
more expensive car, but B refuses to accept. Is B
A: Not valid. X would just be the possessor of justified legally in refusing to accept?
the document, not the credit itself.
A: Yes. Even if the Rolls Royce is more valuable than
2. X, a presumed heir, entered upon an the Jaguar, if B does not want the Rolls Royce, he
inheritance, collected the credits of the cannot be compelled by A to accept it. The terms of
estate, but was later declared by the court to the contract form the law between the parties and
be incapacitated to inherit. Here, payment of the subject matter cannot be changed without the
the credit to X extinguished the obligation. consent of the parties.
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
Art. 1245. – Dation in payment, whereby property stated, the creditor cannot demand a thing of
is alienated to the creditor in satisfaction of a debt superior quality. Neither can the debtor deliver a
in money, shall be governed by the law on sales. thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken
Dation in payment – a special mode of extinguishing into consideration.
an obligation whereby the debtor alienates in favor
of the creditor, property for the satisfaction of OBLIGATION TO GIVE GENERIC THINGS
monetary debt. Reason for the Article: This Article gives a principle
of equity in that it applies justice in a case where
- Can be considered an objective novation of the there is lack of precise declaration in the obligation.
obligation with the common consent of the It is always hard to find one thing that is exactly
parties; thus, extinguishing the obligation. similar to another. But in this kind of obligation,
there is the question of a relative appreciation in that
- In a sense, the understanding really partakes a one party appreciates the same thing as the other
nature of sale, i.e., the creditor is really buying party does. If there is disagreement between them,
the thing or property of the debtor, payment for then the court steps in and declares whether the
which is to be charged against the debtor’s contract has been complied with or not, according
debt. As such, elements of a contract of sale to the circumstances.
must be present, namely: (1) consent; (2)
object certain; (3) cause or consideration. E.g.
X obliged himself to deliver to Y a second hand car,
- Also called, “dation in solutum” or “adjudicacion a 2010 model. In this case, X must not deliver a
en pago.” 2005 model. Also, Y cannot demand a 2014 model.
Example 1: To pay my debt of P1M in favor of Bella, Art. 1248. – Unless there is an express stipulation
I gave her with her consent, a diamond ring instead to that effect, the creditor cannot be compelled
worth P1M. partially to receive the prestations in which the
obligations consist. Neither may the debtor be
Example 2: To pay off his debt, an heir assigned his required to make partial payments.
inheritance in an estate to his creditor. (Ignacio vs
Martinez, 33 Phil 576) However, when the debt is in part liquidated and in
part unliquidated, the creditor may demand and
Art. 1246. – When the obligation consists in the the debtor may effect the payment of the former
delivery of an indeterminate or generic thing, without waiting for the liquidation of the latter.
whose quality and circumstances have not been
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
GENERAL RULE: Performance should be complete. have been cashed, or when through the fault of the
creditor they have been impaired.
Under Art 1233, a debt shall not be understood to
have been paid unless the thing or service in which In the meantime, the action derived from the
the obligation consists has been completely original obligations shall be held in abeyance.
delivered or rendered, as the case may be. Hence,
partial performance is not allowed generally under Legal tender – money (bills and coins) approved in
Art. 1248. a country for the payment of debts, the purchase of
goods, and other exchanges for value. (Black’s Law
EXCEPTIONS (Partial performance, allowed): Dictionary)
1. When there is stipulation to this effect;
- That which a debtor may compel a creditor to
2. Debt is partly liquidated and partly accept in payment of the debt
unliquidated, in which case, performance of
the liquidated part may be insisted upon LEGAL TENDER IN THE PHILIPPINES
either by the debtor or the creditor; Pre-martial law – all notes and coins issued by
Central Bank without maximum limit
E.g.
D owes C P3M plus damages. Even if the Nov 29, 1972 to 2006 under Sec. 231 of PD 72:
amount of damages has not yet been - 1 centavo & 5 centavo coins – valid legal
ascertained, the P3M is already known or tender up to P20.00
liquidated. This is already demandable and - Other coins (P1, P5, P10) up to P50
payable. - All bills – valid for any amount
3. When the different prestations are subject to 2006 to present under Sec. 52, RA 7653 & BSP
different conditions or different terms; Circular No. 537, S-2006:
- 1, 5, 10, 25 centavo coins – valid legal
E.g. tender up to P100.00
A debt payable in installments - P1, P5, P10 coins – up to P1,000
- All bills – valid for any amount
4. When a joint debtor pays his share or the
creditor demands the same. This is a A check is not legal tender and, therefore, the
complete payment of his share, but it is still creditor cannot be compelled to accept payment
a partial fulfillment of the whole obligation. thru this means. (Belisario vs Natividad, 67 Phil 648)
5. When a solidary debtor pays only the part It must be emphasized, however, that this dictum
demandable because the rest are not yet does not prevent a creditor from accepting a check
demandable on account of their being as payment. In other words, the creditor has the
subject to different terms and conditions. option and the discretion of refusing or accepting it.
(Far East Bank and Trust Co. vs Diaz Realty, Inc., GR
6. In case of compensation, when one debt is No. 138588, Aug 23, 2001)
larger than the other, it follows that a
balance is left. (1290, NCC) Are the following legal tender?
1. US dollar – YES, if agreed upon
7. When the work is to be done by parts. 2. British pound – YES, if agreed upon
(1720, NCC) 3. Philippine Peso – YES
4. Gold bars – No
Art. 1249. – The payment of debts in money shall 5. Check – No, unless encashed
be made in the currency stipulated, and if it is not 6. Manager’s check – No, unless encashed
possible to deliver such currency, then in the 7. Post-dated check – No
currency which is legal tender in the Philippines. 8. Promissory note – No
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
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
Extraordinary inflation – unusual decrease in the Art. 1250, NCC provides that “in case of an
purchasing power of currency (i.e., beyond the extraordinary inflation or deflation of the currency
common fluctuation in the value of the currency) stipulated should supervene, the value of the
and such decrease could not be reasonably currency at the time of the establishment of the
foreseen or was manifestly beyond the obligation shall be the basis of payment, unless
contemplation of the parties at the time of the there is an agreement to the contrary xxx.”
obligation.
Extraordinary inflation exists "when there is a
Extraordinary deflation – opposite of extraordinary decrease or increase in the purchasing power of the
inflation Philippine currency which is unusual or beyond the
common fluctuation in the value said currency, and
such decrease or increase could not have
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
If the debtor changes his domicile in bad faith or If the debtor accepts from the creditor a receipt in
after he has incurred in delay, the additional which an application of the payment is made, the
expenses shall be borne by him. former cannot complain of the same, unless there
is a cause for invalidating the contract.
These provisions are without prejudice to venue
under the Rules of Court. SPECIAL FORMS OF PAYMENT
1. Application (or imputation) of payment (Art.
PLACE OF PAYMENT OF OBLIGATION 1252)
1. Place stipulated by the parties; 2. Dation in payment (adjudicacion en pago)
(Art 1245)
2. If no stipulation and obligation is deliver a 3. Assignment in favor of creditors or cession
determinate thing, place where the thing (Art. 1255)
might be (usually or habitually) at the time 4. Tender of payment and consignation (Art.
the obligation was constituted; 1256-1261)
3. In any other case (as when it is to deliver a Application of payment – designation of the debt to
generic thing, to give money, or in case of which should be applied a payment made by a
personal obligation), domicile of debtor. debtor who owes several debts in favor of the same
creditor. It is the phrase applied to show which debt,
out of two or more debts owing the same creditor,
is being paid.
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
RULES ON APPLICATION OF PAYMENT If X does not want to make use of such preferential
1. Debtor makes the designation (Art 1252, right, then Y will designate which debt is to be paid.
par1) So that if Y chooses the third obligation then the
P5,000 will be deducted from the P20,000 leaving a
2. If not, the creditor makes it, by so stating in balance of P15,000.
the receipt that he issues; not valid if without
consent of debtor. If X and Y did not make use of the application of
payment, then the third rule maybe used and that is,
EXCEPT: There is cause for invalidating the it will be applied to the debt which is most onerous
contract. (Art. 1252, par2) to the debtor because there is no factual
circumstance to indicate that the obligation is
Note: If the obligation itself is void, the burdensome like guaranty, surety, pledge, real
application and payment are also void. If the estate mortgage, chattel mortgage or interest.
debtor’s consent in accepting the receipt Hence, if the 1st obligation is secured by a pledge
involving a cellphone, the 2nd obligation is secured
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
by a guaranty and the third obligation contains a SAMPLES OF MORE BURDENSOME (MORE
stipulation as to interest then it should be mentioned ONEROUS) DEBTS
in the facts of the case on what is the most onerous 1. Older ones in case of running accounts (PNB
obligation to the debtor. Like if the debtor wants to vs Veraguth, 50 Phil 253)
have the cellphone which is in possession of Y
being a real contract (perfected by delivery of the 2. Interest-bearing debts even if the non-
object to the pledgee). If he wants to lessen his interest bearing debt is older. (Menzi & Co.
interest, then he might apply his payment to the vs Quing Chuan, 69 Phil 46)
third obligation.
3. Of two interest-bearing debts, that which
If there is no debt which is most onerous to the charges the higher interest is more
debtor, then last rule may apply, that is the payment burdensome
of P5,000 shall be applied to all of the debts
proportionately. 4. Debts secured by mortgage or pledge
(Mission de San Vicente vs Reyes, 19 Phil
Art. 1253. – If the debt produces interest, payment 525)
of the principal shall not be deemed to have been
made until the interests have been covered. 5. Debts with a penalty clause
Interest must be paid first. The debtor cannot insist 6. Advances for subsistence are more onerous
that his payment be credited to the principal instead than cash advances (Montinola vs Gatila, 97
of the interest. Phil 999)
WHY? Reduction in the principal would result in the 7. Debt where the debtor is in mora is more
decrease of the total collectible. onerous than the one where he is not
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
NOTE: Sometimes it is hard to determine which - Special form of payment whereby the debtor
obligation is most onerous. The reason is that the abandons all of his property for the benefit of
burden may be relative. It follows, therefore, that no his creditors in order that from the proceeds
hard and fast rules can be put up. This becomes thereof, the latter may obtain payment of their
more evident when not one circumstance alone is credits.
considered but a combination of different
circumstances. KINDS OR CLASSES OF ASSIGNMENT
1. Legal – Majority of creditors must agree;
E.g. governed by the Insolvency Law (Sec 8, Act
Obligation A – is secured by a mortgage, non- 1956)
interest bearing and recent. 2. Voluntary – All creditors must agree;
governed by Art. 1255, NCC
Obligation B – is unsecured, but maximum interest
bearing and old. REQUISITES FOR VOLUNTARY ASSIGNMENT
1. More than one debt
In such cases, the particular circumstances which 2. More than one creditor
have significant bearing on the case at hand should 3. Complete or partial insolvency of debtor
be observed and the balancing must be done. 4. Abandonment of all debtor’s property not
exempt from execution, unless exemption is
However, as a last resort, when it cannot definitely validly waived by debtor in favor of creditors
be determined whether one debt is more 5. Acceptance or consent on the part of the
burdensome than the other, the author believes that creditors, for assignment cannot be imposed
both will be considered equally burdensome, and on an unwilling creditor.
hence, payment must be applied to both pro rata.
EFFECT OF PAYMENT BY CESSION
Q: If one debt is P1.2M and the other is P600k, and 1. Creditors do not become the owners. They
the debtor without making any application of are merely assignees with authority to sell. If
payment gives P300k, how should said payment be ownership is transferred, this becomes a
applied, presuming that both are of the same nature dation en pago.
and burden?
2. Debtor is released up to the amount of the
A: Payment will be applied proportionately. Hence, net proceeds of the sale, unless there is a
200k will be deducted from the first and P100k will stipulation to the contrary (Art. 1255, 2nd
be deducted from the second. The ratio of the first sentence)
debt to the second debt is thus preserved, namely:
2 is to 1. 3. Creditors will collect credits in the order of
preference agreed upon, or in default of
Subsection 2 agreement, in the order ordinarily
PAYMENT BY CESSION established by law.
Art. 1255. – The debtor may cede or assign his NOTE: Some properties should not be
property to his creditors in payment of his debts. assigned such as:
This cession, unless there is stipulation to the a. Family home (w/ exceptions, Art 223,
contrary, shall only release the debtor from 226)
responsibility for the net proceeds of the thing b. Amount needed by the debtor to support
assigned. The agreements which, on the effect of himself and those he is required by law
the cession, are made between the debtor and his to support. (Art 750) If such amount is
creditors shall be governed by special laws. not reserved, the cession is not void but
merely reducible to the extent that the
Cession or Assignment – Process by which a debtor support is impaired. The party prejudiced
transfers all the properties not subject of execution can ask the court for the reduction.
in favor of his creditors so that the latter may sell (Agapito vs De Joya, CA, 40 OG No.
them, and thus apply the proceeds to their credits. 3526)
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
Dacion en Pago Cession (4) When two or more persons claim the same
Does not affect all In general, affects all right to collect;
properties; only that properties of the debtor (5) When the title of the obligation has been
equivalent of the debt lost.
Does not require Requires more than Tender of payment – Act of offering the creditor
plurality of creditors one creditor what is due him together with a demand that the
creditor accept the same. (Far East Bank & Trust Co
Only the specific or Requires consent of all vs Diaz Realty, GR No. 138588, Aug 23, 2001); may
concerned creditor’s creditors be extrajudicial.
consent is required
Consignation – act of depositing the thing due with
May take place during Requires full or partial the court or judicial authorities whenever the
the solvency of the insolvency creditor cannot accept or refuses to accept
debtor payment. (Limkako vs Teodoro, 74 Phil 31); must
always be judicial.
Transfers ownership Does not transfer
upon delivery ownership NOTE: General Rule: Tender of payment must be
accompanied by consignation in order that the
Really an act of Not an act of novation effects of payment may be produced. Tender of
novation payment is the antecedent of consignation.
Consignation without tender of payment and vice
Extinguishes the Releases the debtor for versa produces no effect of payment.
obligation to the extent the net proceeds of the
of the value of the thing things ceded or EXCEPTIONS: Art. 1256, par 2 (1) to (5); same
delivered either as assigned, unless there effect as payment even without tender of payment.
agreed upon or as may is a contrary intention
be proved, unless Q: When a debtor owes money lent him with
silence of parties interest, is it sufficient to just tender the principal
signifies that they without the interest?
consider the delivery of
the thing as the A: No. Tender of the principal must be accompanied
equivalent of the with the tender of the interest which has accrued.
performance of the Otherwise, tender is not valid. (Fiege & Brown vs
obligation Smith, Bell & Co. and Cowper, 43 Phil 113)
Art. 1257. – In order that the consignation of the There must be proof that: (1) tender had previously
thing due may release the obligor, it must first be been made (general rule); or (2) that the creditor
announced to the persons interested in the had previously notified the debtor that consignation
fulfillment of the obligation. will be made (in case tender is not required).
The consignation shall be ineffectual if it is not Art. 1259. – The expenses of consignation, when
made strictly in consonance with the provisions properly made, shall be charged against the
which regulate payment. creditor.
Previous notice of consignation had been Before the creditor has accepted the consignation,
given to the person interested in the or before a judicial declaration that the
performance of the obligation. consignation has been properly made, the debtor
may withdraw the thing or the sum deposited,
4. Actual consignation (deposit) allowing the obligation to remain in force.
Amount due was placed at the disposal of EFFECTS IF CONSIGNATION HAS BEEN DULY MADE
the court. If the consignation is duly (properly) made:
1. Debtor may ask the judge to order the
5. Subsequent notice of consignation cancellation of the obligation.
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FINALS REVIEW NOTES ON OBLIGATIONS & CONTRACTS
Otherwise, debtor bears the burden. (Sia vs CA, 92 *Withdrawal by debtor after consignation has been
Phil 335) made is only a matter of privilege.
As a matter of privilege:
When after the consignation had been
properly made (the creditor having accepted
or the court having declared it proper), the
creditor authorizes the debtor to withdraw
the thing. (Art 1261)
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