Special Modes of Payment

1) Application for payment

2) Tender of payment
3) Consignation
4) Payment by Cession
5) Dacion En Pago (exception to payment or performance)

Both C and P involve sale of remaining assets/personal real properties of the debtor as payment
of his obligation

DACION EN PAGO (in payment):

No cash/or ayaw nya magbayad = Payment by cession

Creditor is the buyer, debtor is the seller

Rockville V. Cella

Requisites:

1) Existence of a money obligation (Tolentino: it could be for other obligation – different

prestation; interpreted in a not restrictive sense)
2) Alienation – transfer to the creditor from debtor (not just physical but ALSO transfer of
OWNERSHIP with possession
3) For satisfaction of money obligation of the debtor (TV, HOUSE)

Article 1255: The debtor may assign his property to his creditors in payment of debt.

MAY JUDGMENT na in favor of the creditor, 10M.

1) Look for assets (liquid); if 2M lang
2) Payment by CESSION – look for existing assets (personal and real properties); to acquire;
ATTACHED and be SOLD at PUBLIC AUCTION by the sheriff in charge. Be awarded to the
highest bidder
3) Know the PROCEEDS from PBC. If 2M (meron pang 6M na balance)
4) Accion Subrogatoria 1301-1302 (NOVATION)
5) Accion Pauliana (RESCISSION of contracts – clearly to defraud the creditor)
PAYMENT BY CESSION (1177 to fully satisfy his judgment claim)

Requisites:

1) It presupposes many debts

2) There is partial or relative (debtor no longer has sufficient LIQUID assets) insolvency of
the debtor
3) Acceptance of the cession by the creditors

Similarities:
1) Offering of assets for the payment of his existing obligation
2) Alienation exists (BUT possession and ownership to creditor in DEP, and to highest
bidder in PBC)

DIFFERENCES:

DEP – one creditor

PBC – several creditors

DEP – it does NOT presuppose relative/partial insolvency of the debtor. Hindi need na
insolvent. Kasi pwede sya magoffer ng sarili
PBC - it does presuppose relative/partial insolvency of the debtor.

DEP – there is alienation, possession and ownership to creditor

PBC – there is alienation,

DEP – pag pumayag si creditor, extinguished na lahat

PBC – if properties are exhausted, only those to obligations existing.

Application of Payment – designation of the debt in which a payment must be applied when
debtor has several debts to one creditor.

If those several loans are due and demandable – KASO KULANG; SAAN iaapply yung binayad
ngayon?

Requisites:

1) Only one debtor and one creditor (not one person; it may involve to or more BUT
SOLIDARY both)
 2) Two or more debts of the SAME KIND. (Loans – puro pera ang utang)
3) All debts must be DUE, except if there is stipulation to the contrary or AOP is made by
the party of whose benefit the term has been constituted – one who applied for AOP
(presumption as to whose benefit the term is fixed – 1196 … if a term is fixed for
creditor, before arrival of the term, creditor can compel, even before; in so far as
debtor, cannot force creditor to accept before arrival of term)
4) Amount paid by the debtor is insufficient to cover the total amount of the debts.

ILLUSTRATION:

Debtor initially owes Creditor 1M. D borrowed again from C the bank 2M and 3M. Another 2M.
Totally 8M. With interest of 10% per annum (all loans). 8M plus 10% (800k) = 8,800,000.

D pays C = 3M

Where to apply?

1) Apply it in accordance with agreement prior to (making payment and due &
demandable). If may usapan kung saan iapply. That should be followed.

2) If NONE, who would have the right to CHOOSE? It is the DEBTOR who has the RIGHT TO
CHOOSE. Unilateral decision, it need not agreed to by the creditor.

Limitations:

a) 1253 – if debt produces interest, payment of principal shall not be deemed to have
been paid until the interest is covered. (even if the debtor has the right on insisting
what debt shall be paid, TOTAL AMOUNT OF INTEREST must be paid first). Yung 800k
muna.

b) If it would disregard INDIVISIBILITY. For example: If ibabayad nya 2.2M, pwede lang
sya sa 1st (1M),2nd (2M), and 4th (2M) obligation not in 3rd (3M) obligation. EXP: If may
agreement na iapply ko dito ito ha? D agrees.

c) If obligation is made to a debt where there is a term fixed SOLELY for the benefit of
the creditor. (1st, 2nd, 3rd obligations due on April 3, and 4th obligation is due on April
8 (has term fixed solely for the creditor; DEBTOR cannot apply his payment for the
4th obligation)

If NO APPLICATION OF PAYMENT; binigay lang yung payment. CREDITOR acquires opportunity

(NOT A RIGHT) to propose where the payment goes (1252). It needs to be AGREED UPON by the
debtor to be EFFECTIVE.
NO EXPRESS consent by Creditor but in RECEIPT (na ito inapply ko, C deemed to have agreed) =
as RECEIPT itself shows AGREEMENT as to the manner of AOP.

Debtor’s solution –if the manner the C applied it, did not reflect as to how it should have been
done in the RECEIPT, there is a CAUSE to invalidate the contract (contract on agreement how to
apply the payment)

IF NO PROPOSAL from both. - Debtor did not exercise his right and Creditor did not propose

Solution: 1254 (Application to the most onerous to the debtor). NOTE: INTEREST MUNA!

Rely on jurisprudence and 2nd paragraph in 1254:

1) AGE of obligation (older obligation is more onerous); ito muna bago interest
2) Interest (guarantor/surety/solidarity). The amount of the principal obligation was NEVER
taken into consideration. NOT the highest obligation. LOOK PA RIN WHO IS THE OLDEST.

Pinakamalaking interest rate

If same interest, yung pinaka OLD
May surety
May guarantor

If same age, interest = payment shall be applied to them PROPORTIONATELY. Example:

D pays 2.2M. Apply proportionately by giving 1 share to 1M, 2 shares to 2M, 3 shares to 3M, 2
shares to 2M.

2.2M/8 shares = 275,000 (1 share)

1st = 1 shares = 275,000

2nd = 2 shares = 550,000
3rd = 3 shares = 825,000
4th = 2 shares = 550,000

Tender of payment and consignation (TOPAC) – remedy or to rely on when there is mora
accipiendi (refusal by the creditor to accept payment by the debtor without just cause).

Tender or payment THEN consignation

TOP = does not require acceptance

Do not give love, tender love = although unilateral, it is insignificant for you.
1256 – manifestation of the debtor to the creditor that you have the ability to pay.

Tender of payment does NOT extinguish obligation. Only defense for 2209.

2206 – amount of damages

TOP – defense for being liable for DELAY by debtor

Monetary interest – compensation to the C for having allowed the D to use money
Compensatory interest (2209) – payment for the penalty in cases of damages cause to C in case
of delay, fraud, …COTOTO.

PNB v. Relativo – Compensatory interest is suspended when there is TOP.

EXP: Bonratiro v. Luna – if there is TOP and debtor ALSO puts the funds in a situation where it
may be withdrawn anytime by the creditor (D deposited in trust fund for the benefit of the
creditor, can be immediately withdrawn by the latter). Pati MI hindi lang CI ang suspended.

Consignation – only after TOP; only in this process it can extinguish obligation.

1256 – consignation ALONE shall produce the same effect (even without TOP). No TOP needed

1) When C is absent
2) When C is incapacitated to accept at the time it was due (Article 39)
3) Without cause, C refuses to give receipt (acknowledgment of payment)
4) Two or more persons claim to collect. (Example: Rent collected by sons of original
lessor of the property you are leasing)
5) When title of the obligation has been lost (do not know exactly who to pay)
6) By jurisprudence: C before making TOP or before it falls due, C says HINDI KO
TATANGGAPIN ANG BAYAD MO.

Requisites of VALID CONSIGNATION

1) Existence of valid debt which is DUE

2) There should be first TOP (unless 1256)
3) Previous notice of consignation to the person interested in the fulfillment in the
obligation in order to give the C opportunity to reconsider his unjustified refusal and to
accept payment to avoid consignation in the subsequent litigation. IF NONE, pwede pa
rin maging valid yung Consignation kaso it is the DEBTOR who will incur EXPENSES.

NOTE: Consignation may be simultaneously given with TOP.

If with guarantor, notify them for the TOP

4) Consignation to the possession of the Court. Physically transferred to the court

 5) Subsequent notice of consignation (after mo magconsign, yung kaninang notice, bago ka
magconsign. The purpose of this is for D not to be held liable for the deterioration of the
thing. Sinabihan na kita di mo pa rin kinuha, consigned na nga eh. If walang subsequent
notice, di mo maiinvoke iyan)

Remedy when still refused:

Liable for expenses for the litigation

Damages for mora accipiendi

DEBTOR MAY WITHDRAW THE THING: Before C accepts consignation before judicial declaration
has been properly made.

Loss of thing due

Applicable in two ways:

1) To give
2) Impossibility of performance
3) To do

To Give – obligation to give a specific determinate object (1263).

GR: If generic, it never perishes. EXP: If generic becomes outside commerce of man (Example:
10 truckloads of cigarettes, it was made to be CONTRABAND because of covid cos nakaka
aggravate daw, so extinguished na cos outside of commerce of men)

Concept of loss in law:

1) The thing perishes

2) Whereabouts could no longer be determined, there is impossibility to retrieve
something
3) When the thing goes out of commerce of men (GR: Things must be susceptible of being
subject matter of a civil/commercial contracts). Example: Public domain properties,
contraband, illegal drugs/firearms, public plaza, volcano – they cannot be the object of
contract of sale because they are outside commerce of man. A private property before
delivery becomes agricultural property as it became included in the road widening. The
object is also lost.

GR: If the thing is lost absolutely, it extinguishes the original obligation.

EXP:

1) Debtor would still be liable BUT for damages (no longer the original obligation).
 2) When the law so provides (1174)
3) When the stipulation of parties so provides
4) When the nature requires the assumption of risk
5) Loss of the thing is partly due to the fault of debtor
6) Loss of the thing after the debtor incurs delay (1165)

Additional:

7) 1268: Civil liability arising from criminal liability

8) Obligation is delivered generic. EXP: Genus lost because it became outside commerce of
man.

UNILATERAL OBLIGATION

PARTIAL LOSS – 1264 (The court shall determine w/n partial loss is so important as to extinguish
the obligation.

1265 – merely presumption of the loss being the fault of the debtor when thing is in his
possession, unless there is proof to the contrary. This presumption is disputable. It is debtor to
defend himself. EXP: IF at the time when thing was lost, due to FE (in this case, the presumption
is reversed, not the fault of debtor, it is now the creditor to refute such presumption).

AFTER the obligation was constituted – LOTT can only be used as a defense in this time.

RECIPROCAL OBLIGATION – parties are debtor and creditor to each other. Example: Sale and
Lease.

If obligation of one of the parties is rendered impossible due to LOTT –

Example:

A – promised to deliver to B a house

B – in exchange for B delivering to A a condo unit

A, Before delivery, his thing to deliver to B is LOST due to FE.

1 school of thought: Res Perit Domino – the risk is with the debtor. Means A is the debtor, hindi
nya rin makukuha yung condo unit from B. (Tacit resolutory condition – 1191 applies)

2 school of thought: Res Perit Creditori – the risk is with the creditor. Means B is the debtor,
lost by A does not extinguish the obligation of B to give the condo unit. BETTER SCHOOL OF
THOUGHT.
GR:

If fault of debtor = RPD 1191

If FE = RPC, unless under EXP1 (RPD 1191)

EXP1:
RPD (only instances where in RECIPROCAL obligation makes use of RPD due to FE):
1504 – Sale of personal property (bought AC, TV while on delivery it was lost due to FE) = RPD
1655 – lease contracts (lessee would now be excused to continually paying the rent, if the thing
being rented is lost due to FE – nilamon yung apartment due to lindol) = RPD
1717 – contract for a piece of work (Customized chair, but was destroyed and lost) = RPD

CASES:

Mas ginagamit yung RPC wherein the thing is lost due to FE, liable pa rin yung isang party kahit
Nawala nung isa yung thing. Exception lang yung tatlo: 1) 1504, 2) 1655, and 3) 1717.

Is it specific/generic? It is determined in a manner it was constituted in the obligation. Not

really in the nature/technical, but rather the legal manner of constituting it.

Bishop deposited money entrusted to him by the other party. The bank was destroyed due to
earthquake. Obligation is extinguished. Since the manner the thing was constituted even if it
was generic, it was constituted as specific kas inga nilagay sa bangko.

De Leon Soriano v. – debtors committed to deliver certain cavans of palays until the death of
Creditor. Kinapos yung dineliver. Reason: Taken over by the NPA hoop balahabp yung land, so
they no longer able to produce palay. They argued that the obligation is lost. NO. Such generic
thing was NOT CONSTITUTED as SPECIFIC thing.

Utech v. Gonzales – P advanced payment for sugar. Sugar land was destroyed. Supplier argued
that the obligation is lost. NO. Such generic thing was NOT CONSTITUTED as SPECIFIC thing. (It
becomes specific when it says that it shall be harvested from a specific particular property, but
in this case, there is none)

Impossiblity of the performance (1266)

Either: 1) physical impossibility, or 2) against public policy, public moral, public order, good
customs.
When IOTP occurs? After the obligation has been constituted. So, you can only say that the
thing is rendered lost as it became impossible for the performance. You cannot say this before
the constitution of the obligation, kasi impossible na talaga sa umpisa pa lang, you cannot talk
about loss of the thing due extinguishing such obligation.

ILLUSTRATION:

Mccon v. Haragan – The surety company issued a band to guaranty the return of defendant
haragan who went to states to return to the PH. Kapag di bumalik, ifoforfeit yung band in favor
of creditor. Haragan failed to return, however DFA banned him from returning. The security
company was released from the obligation. Kasi nga banned sya bumalik sa PH, the obligation
to return was rendered impossible, hindi na mageeffect yung inissue na band to guaranty the
return of Haragan.

Tabora v. Lasatin – there was a contract of lease where the lessee entered in contract with
lessor over an old movie theater, with the understanding that lessee should rehabilitate such
theater. Despite applying for permit by the lessee to rehabilitate the same, it was the plan of
govt to widen legarda street, greatly affects the location of the theater. Renovating becomes
impossible. Lessee is absolved from doing such obligation. SC: Lessee had done all the securing,
but because of the refusal of the govt authorities, lessee should be absolved.

NOTE: Presupposes Impossibility is PERMANENT.

What if temporary?

GR: Merely delays performance of obligation but does NOT extinguish obligations.

EXP1: When there is agreement, kahit temporary, extinguished.

EXP2: If obligation is just for a definite time, and such temporary impossibility is during such
time = obligation is extinguished.

EXP3: If duration is not known of such impossibility, may be judicially declared that such
impossibility is permanent. Judicial impossibility not factual. Going to court. If later becomes
possible, NO MORE. If judicially declared na as impossible, extinguished na.

1267: The effect of relative impossibility (partial loss/impossibility) – when the service becomes
so difficult the obligor release in whole or in part.

AKA DOCTRINE OF UNFORESEEN EVENTS/theory of imprediscibility, Theory of lack basis,

doctrine of frustration of enterprise = all 1287.

Requisites:
 1) Event or change of circumstance could not have foreseen at the time of the constitution
of the contract
2) It makes performance extremely difficult not impossible
3) Event not due to any parties
4) For a long period of time/or for successive performances

BLTB – allowed to use bus of PANTRANGCO

PANTRANGCO – allowed to use station of BLTB

For 20 years. 3 years however, natabunan bus ni PANTRANGCO. Is BLTB still required to
continue on allowing PANTRANCO using their station? NO. It would be unfair.

NATELCO v. CASORECO and CA – Casoreco has already been in naga providing electricity
service, natelco entered. Instead of putting up own telephone post, they asked casoreco to use
electric post sasabitan nila ng telephone line in exchange of free telephone units this is for 10
years. After 3 years, dami nagsubcribe sa natelco, it necessitated natelco to put up more and
more lines. Casoreco says mukhang lugi na kami dyan. It wants to end the contract. Natelco did
not agree they have 7 more years. CASORECO asked that the contract be terminated for the
basis of DIFFICULTY OF PERFORMANCE. It never thought of casoreco. SC: Ruled in favor of
CASORECO. Contract was terminated. Pero hindi naman basta basta pinaalis lol.

PNCC v. CA – difficulty of performance due to assassination of ninoy aquino.

CONGLASCO CORP v. SANTOS CENTER CORP – allegation of the 1989 financial crisis.

Loss of thing by FE is not applicable in:

1268 – Civil Obligation in Criminal Case

1269 – Subrogation
CONDONATION, CONFUSION, and COMPENSATION

Condonation/Remission of debt
Confusion
Compensation
Novation

Condonation/Remission of debt

Kinds of condonation:

As to form: 1) Expressed or, 2) Implied

As to effectivity: 1) Inter vivos, or 2) Mortis Causa
As to extent: 1) Total, or 2) Partial

Express
Article 1270 – Express condonation
Since it is a donation, it must comply with the requisites of a donation.
It must be accepted by the DEBTOR (just like the donee).

Implied
Article 1271 – private document evidencing a credit is voluntarily delivered by the creditor to
the debtor. It will imply renunciation of the debt (Not public document: Notarized PN – has
several true copies)
No need to comply with the form of donation
Implied condonation MAY BE REFUTED if FOUND to be INOFFICIOUS (Sample: Violation of the
provisions of the Civil Code on Donation Article 752 – Substantive requirement – no person may
give or receive by way of donation more than that he may give or receive BY WILL). You cannot
donate something in excess of your assets.

Example: D is required by C to execute a check/PN, while the obligation is not fulfilled and loan
remains outstanding, C will keep it. If this check/PN is voluntarily RETURNED to the D by the C
even NO payment yet, we apply the IMPLIED renunciation. Like: Huwag mo na ako bayaran.

Requisites of CONDONATION:

1) Gratuitous/Inofficious
2) Must be accepted by the obligor/debtor.
3) Obligation must be demandable (now due and enforceable)
4) Parties must have the capacity (however, even if debtor is incapacitated, if given by the
guardian such consent to accept, the condonation is valid).
5) Not inofficious/void/invalid
 6) Comply with the forms of donation (IF EXPRESSED condonation). Article 748 & 749

Effect of Condonation in SOLIDARY OBLIGATION:

1219 & 1220

Sample 1:
A and B to pay X & Y (all solidary debtors and creditors)
Y demands from A = 1M
A pays 1M to Y = obligation extinguished

However, X condoned B = NO effect (nauna yung payment ni A. DUH. Pwede pa habulin ni A si B

para sa share na binayad nya kay Y)

Sample 2:
A and B to pay X & Y (all solidary debtors and creditors)
X condoned B

B cannot however, reimburse the condoned debt from A.

CONFUSION/MERGER OF RIGHTS

Person of debtor is confused with the person of the creditor.

Resulting to the extinguishment of the obligation
Common in: Intestate or tesate succession. Sample: Father who has son. Father as creditor
extends loan to the son as debtor. Father died. No other heirs except the son. The son will
acquire the rights of the father (to enforce his rights against his own son for the debt, hence
extinguished na liability ni son)

Requisites of Merger:
1) The merger of the charcters of the C and D must be of the same person
2) Must take place in the person of either the principal creditor or the principal debtor
3) Whether the merger referes to the entire or part, there must be complete meeting of
the qualities if the debtor and creditor in the obligation or in the part thereof affected
by the merger.

Effects of merger (1276 & 1277):

1276: Merger of an obligation where there is a guarantor. D has loan from C. D constituted A as
guarantor,

if there is confusion of the person of creditor and debtor, will that release the guarantor A?
YES.
if there is confusion of creditor and debtor in C and A, will that release the guarantor D? NO.

1277: Expressly governs the effect of a merger in cases of joint obligations.

Confusion does NOT extinguish joint obligation, EXP: The share corresponding to the creditor or
debtor in whom the Characters concurred.

Sample:

A and B as debtors
X and Y as creditors

A and Y merged
= B still liable to pay X and Y

What if SOLIDARY? Article 1215 – obligation is extinguished

Sample:

A and B as debtors
X and Y as creditors

X & Y merged with A

= B is also released (but still liable to A) – unlike sa CONDONATION, diba hindi marereimburse ni
A from B kahit nicondone si A nila X and Y.

COMPENSATION – quits (may utang ako sayo may utan ka sakin). Mode of extinguishing where
they are reciprocal creditor to each other.

Types of Compensation:

1) Legal – takes effect by law (Article 286 – no agreement needed. 1290 – if all requisites of
compensation are met; even C and D are not aware)
2) Voluntary/Conventional – takes effect by agreement of parties
3) Judicial – declared to by a court
4) Facultative – can be claimed by a party who can actually oppose it, who is the only one
who may be prejudiced by it. AGREED TO.

A and B are debtor and creditor to each other.

A owes B 1M due on April 5

B owes A 1M due on April 15
There can be no compensation yet that can be effected if objected to by B. Because B’s
obligation is not yet due and demandable. PERO if si B mismo and nagsabi na wag na natin
hintayin yung April 15, compensate na natin. CONDONED.

Requisites of COMPENSATION:

1) 1279 – there must be two parties are both principal creditors and debtors to each other
except of those guarantors (di kasi principal, subsidiary lang – PERO kaya pa ring mag
COMPENSATE).
2) Both debts must consist of a sum of money or if consumables, they must be of the same
kind/quality. NOT possible in obligations to do.
3) Both debts must be due (EXP: Facultative – if voluntary compensation) – sample sa taas.
Yung kahit di pa due, pwede mag agree both na icompensate yung both obligations.
4) Both debts must be liquidated and demandable
5) There must be no retention or controversy commenced by 3rd person over either the
debts or communicated in due time to the debtor. The parties must have no issue in so
far as their respective rights as against the other. No other 3rd party may assert against
the other.
6) Compensation if NOT prohibited by law – 1286 and 1287
7) Compensation is not waived.

EXAMPLE of 3rd requisite: 13

A owes B 1M due on April 5 (guarantored by G)
B owes A 1M due on April 15
A and B compensated
= pwede yung compensation. But Guarantor is released.

EXAMPLE of 5th requisite:

A owes B 1M due on April 5 (guarantored by G)
B owes A 1M due on April 15
B owes X
X asserts right against A
= NO COMPENSATION between A and B since meron si X na 3rd party.

4th requisite is the general rule. EXCEPTION: JUDICIAL COMPENSATION – 1283

If one or both debts are rescissible/ voidable they may be compensated against each other
before the may be judicially rescinded or avoided.

Rescissible obligations are valid until annulled.

BAR QUESTION: 1285 – effect of assignment by a party on whether there could still be
compensation effected to extinguish the obligation?

Sample:
B owes A 1M
A owes B 1M
A assigns his right to C (A no longer a proper party)
Can B still set up compensation? (BASIS: Depends, if debtor B, knows and CONSENTED to such
assignment – NO more compensation can be invoked by B against C. EXCPETION again: If B
reserved the right to compensate). If no consent of B, matic YES.

Reiteration:
B had no knowledge of the assignment: B may set up compensation (credits prior till later ones
till B had knowledge of such assignment)

1287-1289 = self-explanatory

NOVATION

Article 1291 – Obligations may be modified by but no extinguishment (MISNOMER). Replacing it

with a new OR modifies.