Payment Or Performance Report V1.pptx

Payment or Performance

Art 1232 ART. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment is that mode of extinguishing obligations which consists of: The delivery of money, or The performance in any other manner of an

obligation. (Ex: rendition of the required service) © 2018 Slidefabric.com All rights reserved.

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Payment or Performance

Elements of Payment 01 Persons, who may pay and to whom payment may be made;

04 The mode or form thereof; 05 The place and time in which it must be made;

02 Thing or object in which payment must consist;

06 The imputation of expenses occasioned by it; and

03 The cause thereof;

07 The special parts which may modify the same and the effects

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they generally produce S L I D E

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Elements which are designated in Latin quis (who) , quinam (which), quid (what), causa (cause), quo modo (mode/way), ubi (where), quando (when), expensae (expenses), and pacta adjunta (agreement attached). © 2018 Slidefabric.com All rights reserved.

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Payment or Performance

Art 1232 Burden of Proof: - is the duty of a party to present

evidence of the facts in issue necessary to prove the truth of his claim or defense by the amount of evidence required by law - devolves upon the debtor who pleads payment or offers such a defense to the claim of the creditor rather than on the latter to prove non-payment.

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Payment or Performance

Art 1232 Burden of Proof example: Presentation of receipt (e.g. good proof of

payment.) Therefore, a debtor can demand the issuance of a receipt

from

the

creditor

once

his

debt

is

paid. Consignation may be requested by the debtor

in case the creditor refused to issue the receipt. The burden of proof of payment lies on the debtor, after the creditor has shown that the debt exists. © 2018 Slidefabric.com All rights reserved.

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Payment or Performance

Art 1233 ART. 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.

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Payment or Performance

Requisites when debt is considered paid 01 Integrity of the Prestation It should be fulfilled completely.

02 Identity of the Prestation The very prestation due must be delivered or performed (Art. 1244).

Example: Mike bound himself to pay

Example: D agreed to paint the house of C for

Rachel P20,000. Rachel is giving only

P50,000. D did not paint the kitchen anymore and

P18,000. Mike can refuse to accept

instead asked C to pay him P50,000 less the cost of

P18,000 because the fulfillment is not

painting the kitchen. C can refuse to pay D because

complete.

the debt of C (to deliver the money) will arise only after the debt of D (to paint the house) is completely

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Payment or Performance

Art 1234 ART. 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.

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Payment or Performance

Art 1234 An exception to Art. 1233

Reason: In case of substantial performance, the obligee is benefited so the obligor should be allowed to recover as if there had been a strict and complete fulfillment less damages suffered by the obligee. This last condition affords a just compensation for the relative breach committed by the obligor.

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Payment or Performance

Requisites of Art. 1234 01

There

must

be

substantial

02 The obligor must be in good faith.

performance.

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Payment or Performance

Art. 1234 SUBSTANTIAL COMPLIANCE

RIGHT TO RESCIND

that the debtor, when in good faith, has attempted

The right to rescind if there is substantial

to perform the contract or prestation, but through

compliance cannot be invoked. This is because the

oversight, or any excusable neglect, he failed to

obligee has already benefited from the obligation.

make a full and complete performance, for which

.

the other party may be indemnified, there is already a substantial compliance and the debtor shall recover as though there had been a strict and complete fulfillment of the obligation. © 2018 Slidefabric.com All rights reserved.

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Art. 1234 - CASE ILLUSTRATION

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Payment or Performance

Art 1235 ART.

1235.

performance

When

knowing

the

its

obligee

accepts

the

incompleteness

or

irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

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Payment or Performance

Art 1235 Another exception to Art. 1233

Reason: It is founded on the principle of estoppel. In case of acceptance, the law considers that the creditor waives his right. The whole obligation is extinguished.

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Payment or Performance

Requisites of Art. 1235 01

The

obligee

knows

that

the

performance is incomplete or irregular;

02

He accepts the performance without

expressing any protest or objection.

and

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Payment or Performance

Art. 1235 MEANING OF ACCEPT

FORM OF PROTEST OF CREDITOR

- The word “ACCEPT” on this article means to take

- No require the protest or objection of the creditor

as “satisfactory or sufficient,” or to “ give assent” or

to be made in a particular manner or at a particular

to

“agreed”

or

“accede”

performance.

to

an

incomplete

time. So long as the acts of the creditor, at the time of the incomplete or irregular payment by the

debtor, or within a reasonable time thereafter, evince that the former is not satisfied or agreeable to said payment or performance

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Art. 1235 - CASE ILLUSTRATION

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Payment or Performance

Art 1236 ART. 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. (1158a) © 2018 Slidefabric.com All rights reserved.

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Payment or Performance

Persons to whom the creditor is bound to accept payment or performance 01 The debtor;

03

A third person who has no interest in the

obligation when there is stipulation that he can

02

Any person who has an interest in the

make payment.

obligation (like a guarantor); or

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Application of Payments

Art 1236 (2) General Rule: Third person who paid another’s debt is entitled to recover the FULL amount of what he paid

Exception: The law limits the recovery to the amount by which the

debtor has been BENEFITED, if 1. debtor has no knowledge of, or 2. expressed his opposition to such payment

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Art. 1236 - Example D owes C the sum of P1,000.00. If S, a stranger to the obligation, offers to pay C, the latter may or may not accept the offer of payment. Suppose C accepts, the right of S to recover from D depends upon whether the payment is with or without the knowledge or consent of D. Without the knowledge (or against the will) of D — 1. If the actual indebtedness is P1,000.00 and S paid P1,000.00, he can ask reimbursement for P1,000.00 but if P400.00 had already been paid by D, then S is entitled to be reimbursed only for the amount of P600.00 because it is only to that amount that D has been benefited. S can recover P400.00 from C who should not have accepted it. If C acted in bad faith, he is liable also for interest in lieu of damages.

2. With the knowledge of D — In either case, if the payment of P1,000.00 was made with the knowledge or consent of D, S can recover from D P1,000.00 with all the rights of subrogation to the accessory obligations such as mortgage, guaranty, or penalty. (Art. 1237.) © 2018 Slidefabric.com All rights reserved.

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Payment or Performance

Art 1237 ART. 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

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or

penalty.

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Payment or Performance ART 1237

Persons who may perform the obligation 01

The debtor himself or his legal

02 Any third person.

representative;

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PAYMENT OR PERFORMANCE ART 1237

Payment Made by A Third Person Without The Knowledge or Against The Will of The Debtor 01 He can only recover the payment that is beneficial to the debtor.

02 He cannot place himself to have all the rights pertaining to the debtor.

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Payment or Performance

Art. 1237 SUBROGATION

EXAMPLE OF SUBROGATION “In

- A mortgaged his property to B in the amount of

subrogation, the person who pays for another

P2,000.00. C, a third person, pays the whole

acquires not only the rights to be reimbursed for

debt of A to B without the knowledge of A.

what he has paid but also the other rights attached

then asks that B assign to him the rights as a

to the obligation originally contracted by the debtor.

mortgagee. If B refuses, can C compel him?

- The substitution of one for rights in law.

He

- No, Under Article 1237

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PAY M E N T O R P E R F O R M A N C E

Art 1238 ART 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.

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Art. 1238 - EXAMPLES - X owes Y P1,000.00. Without the intention of being reimbursed, Z paid X’s obligation. X had previously accepted Z generosity.

In the case, X is not liable to Z and his obligation is extinguished. But if X did not consent to the donation, Z may recover from X since there has been no donation, although originally Z did not intend to be reimbursed.

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PAY M E N T O R P E R F O R M A N C E

Art 1239 ART 1239. In obligations to give, payment made by

one who does not have the free disposal of 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.”

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Art. 1239 - EXAMPLES - S agreed to sell to B a television set. If the television set delivered to B by S belongs to C, the same can be recovered by C because the payment is not valid. S does not have free disposal of the television set

- Under Article 1427, if S is a minor between 18 to 21 years, and he voluntarily pays a sum of money or delivers a fungible thing to B in fulfilment of his obligation, there shall be no right to recover the same from B in case the latter has spent or consumed it in good faith.

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Payment or Performance

Art. 1239 FREE DISPOSAL OF THING DUE – means the thing to be delivered must not be

CAPACITY TO ALIENATE

- means that the person is not incapacitated to

subject to any claim or lien or encumbrance of a

enter into contracts and for that matter, to make

third person.

a disposition of the thing due.

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PAY M E N T O R P E R F O R M A N C E

Art 1240 ART 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.

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Payment or Performance ART 1240

Person to whom payment shall be made GENERAL RULE

EXCEPTION TO THE GENERAL RULE

1) The creditor or obligee.

1) Payment made to a third person, provided that it

2) His successor in interest.

has redounded to the benefit of the creditor.(Art.

3) Any person authorized to received it.

1241,par 2)

2) Payment made to the possessor of the credit, provided that it was made in good faith.( Art. 1242)

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TENDER OF PAYMENT AND CONSIGNATION

Any person authorized to receive it - As used in article 1240, it means not only a person authorized by the creditor, but also a person authorized by law to receive the payment such as guardian, executor or administrator of the estate of a deceased, and assignee or liquidator of a partnership or

corporation as well as any other person who may be authorized to do so by the law.

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Art. 1240 - EXAMPLE

- D owes C P5,000. 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 another person is not valid except as provided in article 1241, paragraph 2.

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PAY M E N T O R P E R F O R M A N C E

Art 1241 ART. 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.

Payment made 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 right 2. If the creditor ratifies the payment to the third person

3. If by the creditor’s conduct, the debtor had been led to believe that the third person had authority to receive the payment. © 2018 Slidefabric.com All rights reserved.

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Payment or Performance

Art. 1241 EFFECT OF PAYMENT TO AN INCAPACITATED

PAYMENT TO THIRD PERSONS

PERSON -It shall be valid insofar as it has essentially -Payment to a person incapacitated to administer

redounded to the benefit of the creditor.

or manage his property is not valid unless such

it must have conclusive proof that it is beneficial to

incapacitated person kept that thing paid or

the creditor.

delivered. Or was benefited by the payment. Except in the three cases specified in the second paragraph of the Article. © 2018 Slidefabric.com All rights reserved.

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Art. 1241 - 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.

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PAY M E N T O R P E R F O R M A N C E

Art 1242 Payment made in good faith to any person in possession of the credit shall release the debtor.

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PAYMENT OR PERFORMANCE

ART 1242 -Payment made subsequently by the debtor-stranger shall not be valid if the plaintiff wins the case and cannot collect from the debtor to whom the payment is made. Such payment is considered as made in bad

faith.

-The judicial order may have been prompted by an order of attachment, injunction or garnishment.

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PAYMENT OR PERFORMANCE ART 1242

POSSESSION 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 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. © 2018 Slidefabric.com All rights reserved.

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Art. 1242 – CASE ILLUSTRATION FACTS: Panganiban is the owner of a parcel of land. He sold the land to Gonzales with a right to repurchase. During the war, Panganiban failed to find Gonzales, and the land was attached by the revolutionary government. Since Panganiban has a right to repurchase, he paid the repurchase price to the revolutionary government in good faith. It turned out however that Gonzales sold the land to Cuevas. Panganiban brought an action to recover the land from Cuevas.

HELD: No. Article 1164 (in the New Civil Code it is Article 1242) cannot be used in this case because the payment to the revolutionary government was an invalid payment. The government merely attached the property which attachment merely prohibited its alienation. For the provision to be considered in this case, the revolutionary government must be in the possession of the credit. However, it was not.

ISSUE: Whether or not Panganiban has the right to recover the land from Cuevas, given that he already paid the repurchase price to the revolutionary government. © 2018 Slidefabric.com All rights reserved.

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PAY M E N T O R P E R F O R M A N C E

Art 1243 Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.

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PAYMENT OR PERFORMANCE

ART 1243 -Payment made subsequently by the debtor-stranger shall not be valid if the plaintiff wins the case and cannot collect from the debtor to whom the payment is made. Such payment is considered as made in bad faith.

-The judicial order may have been prompted by an order of attachment, injunction or garnishment.

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Payment or Performance

Art. 1243 GARNISHMENT

INTERPLEADER

-The proceeding by which a debtor’s creditor is subjected

-It is technical name of the action in which a certain

to the payment of his own debt to another.

person in possession of certain property wants claimants

to litigate among themselves for the same. INJUNCTION

-It is a judicial process by virtue of which a person is generally ordered to refrain from doing something. © 2018 Slidefabric.com All rights reserved.

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PAY M E N T O R P E R F O R M A N C E

Art 1244 The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of 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.

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PAYMENT OR PERFORMANCE

ART 1244 -Very prestation due must be complied with. (1) The first paragraph refers to a real obligation to deliver a specific thing. A thing different from that due cannot be offered or demanded against the will of the creditor or debtor, as the case may be. (2) The second paragraph refers to personal (positive and negative) obligations.

The act to be performed or the act prohibited cannot be substituted against the obligee’s will.

e.g. A obliged himself to deliver to B a specific car. A cannot force B to accept a different car even if the value of it is higher or lower. Exemption unless agreed upon or if the creditor consents. Waiver of defects if there’s defects on the prestation delivered. It may be waived © 2018 Slidefabric.com All rights reserved.

by the creditor, if he expressly so declares or accepts it without protest.

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PAY M E N T O R P E R F O R M A N C E

SPECIAL FORMS OF PAYMENT 01 Dacion en Pago

02 Application of Payment**

Art. 1245

Arts. 1252-1254, 1248

03 Payment by Cession or

Assignment Art. 1255

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04 Tender of Payment or Consignation Arts. 1256-1261

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PAY M E N T O R P E R F O R M A N C E

Art 1245 ART. 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.

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PAYMENT OR PERFORMANCE

ART 1245 DATION IN PAYMENT (ADJUDICATION OR DACION EN PAGO)

-the conveyance of ownership of a thing by the debtor to creditor as an accepted

equivalent of performance of a monetary obligation.

-It is a special form of payment because it is not the ordinary way of extinguishing an obligation. A debt in money is satisfied, not by payment of money (Art. 1244.), but by the transmission of ownership of a thing by the debtor to the creditor.

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PAY M E N T O R P E R F O R M A N C E

Art 1246 ART. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances

have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.

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PAYMENT OR PERFORMANCE

ART 1246 RULE OF THE MEDIUM QUALITY. -If the obligation consists in the delivery of a specific thing, the very thing due must be delivered. (Art. 1244.) However, if the obligation is to deliver a generic thing, the purpose of the obligation and 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 of the quality or kind of thing to be delivered. It is always hard to find one thing that is exactly similar to another. If there is disagreement between the parties, the law steps in and determines whether the contract has been complied with or not according to the circumstances. © 2018 Slidefabric.com All rights reserved.

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PAYMENT OR PERFORMANCE

ART 1246 The benefit of this article may be waived by the creditor by accepting a thing of inferior quality and by the debtor by delivering a thing of superior quality. © 2018 Slidefabric.com All rights reserved.

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PAY M E N T O R P E R F O R M A N C E

Art 1247 ART. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the

debtor. With regard to judicial costs, the Rules of Court shall govern.

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PAYMENT OR PERFORMANCE

ART 1247 DEBTOR 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.

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PAYMENT OR PERFORMANCE

ART 1247 LOSING PARTY GENERALLY PAYS 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.

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PAY M E N T O R P E R F O R M A N C E

Art 1248 ART. 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.

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PAYMENT OR PERFORMANCE

ART 1248 COMPLETE PERFORMANCE OF OBLIGATION NECESSARY

•

The above provision contemplates obligations where there is only one creditor and only one debtor. Joint and several obligations are governed by Articles 1207 to 1222. (Chap. 3.)

The prestation, i.e., the object of the obligation, must be performed in one act, not in parts. (Barons Marketing Corp. vs. Court of Appeals, 286 SCRA 76 [1998].) In order that payment may extinguish an obligation, it is necessary that there be complete performance of the prestation. (Art. 1233.) The creditor may accept but he cannot be compelled to accept partial payment or 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.

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When partial performance of obligation allowed • There are cases, however, when partial performance may be either required or insisted. Among these cases are: • (1) when there is an express stipulation to that effect (par. 1.); • (2) when the debt is in part liquidated (definitely determined or determinable) and in part unliquidated (par. 2.);

When partial performance of obligation allowed • (3) when the different prestations in which the obligation consists are subject to different terms or conditions which affect some of them. In obligations which comprehend several distinct prestations (e.g., obligation to pay debt in installments.), it is evident that the prestations need not be executed simultaneously but each successive execution thereof must be complete; • (4) when the parties know that the obligation reasonably cannot be expected to be performed completely at one time; and • (5) when there is abuse of right or if good faith requires acceptance.

EXAMPLES • (1) D is indebted to C for P5,000.00 due today. D cannot compel C to receive P4,000.00 in partial payment of the obligation and neither can C require D to pay only P4,000.00 unless there is an agreement to the contrary. • (2) If D owes C P5,000.00 plus the share of C from the profit of a business which, however, has not yet been liquidated or determined, C may demand and D may effect, the payment of the P5,000.00 which is already known.

EXAMPLES • (3) If P4,000.00 of the debt of D is due today and P1,000.00 tomorrow, the obligation can be complied with partially. Similarly, partial performance may be effected in case the payment of the P1,000.00 is subject to the fulfillment of a condition. • (4) S obliged himself to deliver 50,000 bags of cement to B at the construction site of a building. S makes a first delivery of 5,000 bags, informing B that continuous deliveries will follow. In this case, B cannot, in good faith, refuse to accept the partial deliveries as long as they are sufficient for his construction needs.

ILLUSTRATIVE CASE • Facts: Respondent (plaintiff) company, PDP, appointed petitioner (defendant) BMC as one of the dealers of electrical wires and cables. As such dealer, BMC was given by PDP 60 days credit for its purchases of electrical products. The credit term was to be reckoned from the date of delivery by PDP of its products to defendant. • On several occasions, PDP wrote BMC demanding payments of its outstanding obligations due PDP. PDP rejected BMC’s offer to pay its outstanding account in monthly installments of P500,000.00 plus 1% interest per month until full payment, and reiterated its demand for the full payment of defendant’s account. PDP filed a complaint against BMC for the recovery of P3,802,478.20 representing the value of the wires and cables the former had delivered to the latter, including interest. It likewise prayed that it be awarded attorney’s fees at the rate of 25% of the amount demanded, exemplary damages amounting to at least P100,000.00, the expenses of litigation, and the costs of suit.

• Petitioner in its answer, admitted purchasing the wires and cables from private respondent but disputed the amount claimed by the latter. • Petitioner likewise interposed a counterclaim against private respondent, alleging that it suffered injury to its reputation due to latter’s acts. Such acts were purportedly calculated to humiliate petitioner and constituted an abuse of rights.

• Issues: The instant petition raises two issues one of which is whether or not PDP is guilty of abuse of right.

• Held: (1) Limitation of abuse of right. — The right of the creditor under Article 1248 has its limitations. “Since the creditor cannot be compelled to accept partial performance, unless otherwise stipulated, the creditor who refuses to accept partial prestations does not incur in delay or mora accipiendi, except when there is abuse of right or if good faith requires acceptance. (citing IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the Phils., 1990 Ed., p. 298.)

PAY M E N T O R P E R F O R M A N C E

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

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 abeyance.

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Payment of debts in money payable in Philippine currency • The first paragraph of Article 1249 is not applicable where the contract between the parties is to pay in Philippine currency. (Haw Pia vs. China Banking Corp., 80 Phil. 604 [1948].) • The phrase “currency stipulated” used in Article 1249 refers to money different from that which is the legal tender or legally current in the Philippines. (see Del Rosario vs. Sandico, 85 Phil. 170 [1949].)

Meaning of legal tender • Legal tender is that currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount. • In the Philippines, all coins and notes issued by the Bangko Sentral ng Pilipinas constitute legal tender for all debts, both public or private. • 5, 10, 25 centavos- up to P100 • 1, 5, 10 peso coins- up to P1000 • Bills- no limit

Payment by means of instruments of credits • (1) Right of creditor to refuse or accept. — Promissory notes, checks, bills of exchange and other commercial documents are not legal tender and, therefore, the creditor cannot be compelled to accept them. This is true even though the check is certified, or is a manager’s check. • 2) Payment for purpose of redemption. — “A redemption of property sold under execution is not rendered invalid by reason of the fact that the payment to the sheriff for the purpose of redemption is effected by means of a check for the amount due.”

Payment by means of instruments of credits • (3) Effect on obligation. — Payment by means of mercantile documents does not extinguish the obligation —

• (a) until they have been cashed; or • (b) unless they have been impaired through the fault of the • creditor. (par. 2.) • In other words, the delivery of the paper or document shall produce the effect of a valid payment only when either situation has taken place. In the first case, the instrument may have been executed by the debtor himself or by a third person. The second case is applicable only where the instrument was executed by a third person.

Applicability of impairment clause of Article 1249 • Article 1249 (par. 2.) is applicable not only to those instruments executed by third persons, which the debtor delivers to the creditor, but also to a note executed by the debtor himself and delivered to the creditor. It has been held, however, that the clause relative to impairment of the negotiable character of commercial paper by the fault of the creditor is applicable only to the first class of instruments, i.e., those executed by third persons and delivered by the debtor to the creditor, and does not apply to instruments executed by the debtor himself and delivered to the creditor. • Acceptance of a check implies an undertaking of due diligence on the part of the payee in presenting it for payment. If no such presentment was made, the drawer cannot be held liable irrespective of loss or injury sustained by the payee.

Illustrative Case • Facts: S sold goods to B for P2,200.00. For the purpose of paying the sum, B delivered to S a bill of exchange for P2,700.00 purporting to be drawn by C to the order of D on E. When the bill was delivered to S it was indorsed by D, and apparently accepted by E. S took the bill and paid B P500.00 in cash, the difference between P2,700.00 and P2,200.00, the value of the goods sold. • E refused to pay the bill on the ground that his signature thereto was a forgery. S neglected to have the bill of exchange protested for nonpayment. Nothing was ever realized on the bill. • Issue: Is B liable for the full value of the goods sold?

• Held: No. Where a bill of exchange is delivered by the debtor to the creditor and the drawee (the addressee of a bill of exchange, that is, the person who is commanded or ordered by the drawer to pay.) of the bill refused to make payment and the creditor neglected to have the bill protested for non-payment as required by law, the delivery of the bill by the debtor to the creditor operates as a valid payment and he must suffer the loss occasioned by its nonpayment. The sum of P2,200.00 was deducted from the sum allowed S. (Quiros vs. Tan Guinlay, 5 Phil. 675 [1906]; see U.S. vs. Beduya, 14 Phil. 397 [1906].)

• Facts: N (Namarco) and F entered into a contract of sale whereby F agreed to pay N on cash basis certain merchandise to be imported by N upon delivery of the duly indorsed negotiable shipping document covering the same. • To insure the payment of the goods by F, N accepted three (3) PNB (Phil. National Bank) domestic letters of credit in favor of N for the account of F, available by sight drafts covering the full invoice value of the goods. After N had delivered a great portion of the goods listed in the contract, it refused to deliver the other goods. The common condition of the three (3) letters of credit is that the sight drafts drawn on them must be duly accepted by F. Although PNB informed N that the former could not negotiate and effect payment on the sight drafts drawn under its letters of credit as the requirements covering the same had not been complied with, said drafts were not presented by N to F for acceptance. • N brought action to recover the cost of the merchandise. The theory of F is that the failure of N to present the sight drafts to the former for acceptance deprives N of a cause of action against F.

• Issue: Did the delivery of the domestic letters of credit to N operate to discharge the debt of F? • Held: No. N’s action is not based on the letters of credit but on its legal right to the cost of the goods delivered. N accepted the letters “to insure the payment of the goods by F.” It was given, therefore, as a mere guarantee for the payment of the merchandise. The delivery of promissory notes payable to order, or bills of exchange, etc., shall produce the effect of payment only when realized, or when by the fault of the creditor, the privileges inherent in their negotiable character have been impaired. The claim in Article 1249 relative to impairment of the negotiable character of the commercial paper is applicable only to instruments executed by third persons and delivered by the debtor to the creditor, and does not apply to instruments executed by the debtor himself and delivered to the creditor. • In the case at bar, it is not even pretended that the negotiable character of the sight draft was impaired as a result of the fault of N. There was no agreement that they should be accepted as payment. A mere attempt to collect or enforce a bill or note from which no payment results is not such an appropriation of it as to discharge the debt. (National Marketing Corp. vs. Federation of United Namarco Distributors, Inc., supra.)

• Facts: B told S, etc. that he (B) would accept the repurchase by S, etc., of a certain land by check and that by reason of such repurchase, S, etc., could return to their home. The following day S, etc., offered payment by check. • Issue: Has B the right to refuse to accept such payment? • Held: No. B is guilty of estoppel (see Art. 1431.) because he induced S, etc., to act upon the belief that he had consented to said manner of payment. (Gutierrez vs. Carpio, 53 Phil. 334 [1929].)

PAY M E N T O R P E R F O R M A N C E

Art 1250 ART. 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.

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Meaning of inflation and deflation • (1) Inflation is a sharp sudden increase of money or credit or both without a corresponding increase in business transactions. • Inflation causes a drop in the value of money, resulting in rise of the general price level. • There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in 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. • For lack of an express provision on the question in the old Civil Code, there was a great deal of uncertainty and confusion as a result of contracts entered into during the last world war which saw an extraordinary inflation of currency. According to the Code Commission, the rule in Article 1250 provides a just solution for future cases

Requisites for application of Article 1250 • (1) There is an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP). • (2) The obligation is contractual in nature; and • (3) The parties expressly agreed to consider the effects of the extraordinary inflation or deflation.

Basis of payment in case of extraordinary inflation or deflation • Under Article 1250, the purchasing value of the currency at the time of the establishment of the obligation shall be the basis of payment, in case of any extraordinary increase or decrease in the purchasing power of the currency which the parties could not have reasonably foreseen. • This is, however, subject to the agreement of the parties to the contrary. The burden of proving that there had been extraordinary inflation or deflation of the currency is upon the party that alleges it.

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). • 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 fi ve (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.

ILLUSTRATIVE CASE: • Facts: Under the collective bargaining agreement between Pan Am Airways and PAA Employees’ Association, the parties agreed to renegotiate on wage rates (1) if during the term of the agreement a law be passed diminishing the value of the Philippine Currency and (2) as a result thereof Pan Am is granted the necessary authority to increase its rates. No law had been passed by Congress diminishing the value of the Philippine Currency. • Pursuant to law (R.A. No. 2609; Sec. 79, R.A. No. 265.), and during the life of the agreement, the Central Bank of the Philippines fixed the rate of exchange between the peso and the dollar at P3.20 to $1.00 and later to P3.00 to $1.00 and authorized the sale of airline tickets at the rate of P3.20 to $1.00.9 The (defunct) Court of Industrial Relations found the two conditions in the agreement present and reopened the said agreement for negotiation on wage rates.

• Issue: Do the fixing of the rate of exchange between the peso and the dollar and the authority to sell airline tickets referred to amount to a law diminishing the value of the currency?

• Held: Yes. The purchasing power or value of money or currency does not depend upon, cannot come into being, be created or brought about by a law enacted by the legislative department of the Government. • If by law or treaty the rate of exchange between two currencies should be fixed or stipulated, such law or treaty could not give the money or currency the purchasing power or value fixed or stipulated but would bind the Government enacting the law or contracting parties to a treaty to pay or supply the difference between the value fixed or stipulated and the real value of the currency should the latter be lower than the fixed or stipulated rate of exchange between the two currencies by drawing upon its international reserves.

When inflation or deflation extraordinary • It has been suggested that a better test as to when inflation or deflation is extraordinary is “one that neither party had reason to foresee when the obligation was established” or “manifestly beyond the contemplation of the parties” at the time of the establishment of the obligation as stated in Article 1267 or a similar case.

Devaluation and depreciation distinguished • Devaluation involves an official reduction in the value of one currency from an officially fixed level imposed by monetary authorities.

• Depreciation, on the other hand, refers to the downward change in the value of one currency in terms of the currencies of other nations which occurs as a result of market forces in the foreign exchange market. • The Philippines presently maintains a floating foreign exchange rate system and not an officially fixed rate regime. So, any lowering of the value of the peso as a result of foreign exchange market forces is a depreciation and not a devaluation. • Both refer to the decrease in the value of the currency. If devaluation is used in that sense by the parties to the contract, it may be regarded as synonymous with depreciation.

PAY M E N T O R P E R F O R M A N C E

Art 1251 ART. 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.

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PAYMENT OR PERFORMANCE

ART 1251

Pla c e w here obliga t ion s ha ll be pa id

01 If there is a stipulation, the payment shall be made in the place designated (par. 1; see Art. 1306.); 02 If there is no stipulation and the thing to be delivered is specific, the payment shall be made at the place where the thing was, at the perfection of the contract (par. 2.); 03 If there is no stipulation and the thing to be delivered is generic, the place of payment shall be the domicile of the debtor. (par. 3.) In this case, the creditor bears the expenses in going to the debtor’s place to accept payment (see Art. 1247.) subject to the rule in paragraph 4. The order as above enumerated is successive and exclusive as may be gleaned from the provision itself. (De Pamaylo vs. Velasco, [C.A.] No. 21639-R, Jan. 16, 1959.) Note: Venue is the place where a court suit or action must be filed or instituted. (Secs. 1-4, Rule 4, Rules of Court.) © 2018 Slidefabric.com All rights reserved.

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Concept of domicile • Domicile is the place of a person’s habitual residence. (Art. 50.) • Residence is only an element of domicile. Residence simply requires bodily presence as an inhabitant in a given place, while domicile (or legal residence) requires bodily presence in that place and also an intention to make it one’s domicile. Some cases make a distinction between the two terms but as generally used in statutes fi xing venues, they are synonymous and convey the same meaning as the term “inhabitant.”

Application of Payments

Art 1252 ART. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied.

Unless the parties so stipulate, or when the application of payment

is made by the party 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. © 2018 Slidefabric.com All rights reserved.

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Application of payments is the designation of the debt to which should be applied the payment made by a debtor who has various debts of the same kind in favor of one and the same creditor © 2018 Slidefabric.com All rights reserved.

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Application of Payments

Requisites (1) There must be one debtor and one creditor; (2) There must be two or more debts; (3) The debts must be of the same kind; (4) The debts to which payment made by the debtor has been applied must be due; and (5) The payment made must not be sufficient to cover all the

debts.

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Application of Payments

Application as to debts not yet due The application of payments as to debts not yet due cannot be made unless: (1) there is a stipulation that the debtor may so apply; or

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

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Extinguishment of Obligations

Rules on Application of Payments 01

The debtor has the first choice; he must indicate at the

time of making payment, and not afterwards, which

02

The right to make the application once exercised is

irrevocable unless the creditor consents to the change .

particular debt is being paid. If, in making use of his right, the debtor applied the payment to a debt, he cannot later claim that it should be applied to another debt.

03

It is clear from the use of the word “may’’ rather than the

word “shall’’ in Article 1252 that the debtor’s right to apply payment is not mandatory but merely directory. If the debtor does not apply payment, the creditor has the subsidiary right

04

If the creditor has not also made the application, or if the

application is not valid (par. 2.), the debt, which is most onerous to the debtor among those due, shall be deemed to have been satisfied

to make the designation by specifying in the receipt which debt is being paid; © 2018 Slidefabric.com All rights reserved.

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Extinguishment of Obligations

Rules on Application of Payments 05

If the debts due are of the same nature and burden, the

payment shall be applied to all of them proportionately; and

06

If neither party has exercised its option and there is

disagreement as to debts to which payment must be

applied, the court will apply the payment according to the justice and equity of the case, taking into consideration all its circumstances

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The rules in Articles 1252 to 1254 apply to a person owing several debts of the same kind to a single creditor. They are not applicable to a person whose obligation as a mere surety is both contingent and singular. © 2018 Slidefabric.com All rights reserved.

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Art 1252- EXAMPLE D owes C as follows: (a) P1,500 payable on September 5; (b) P1,200 payable on September 20 (c) A specific table worth P 2,000.00 to be delivered on Sept. 20; and (d)P1,000.00 payable on October 15. On Sept. 20, D paid C P 1,500.00. Can D apply the payment to the following debts: Debt (a)=? Debt (b) = ? Debt (c)= ? Debt (d)= ?

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If D paid only P1,000.00, he cannot choose to apply his payment to debt (a) or (b) because C cannot be compelled to receive partial payment. (Art. 1248) D cannot properly apply his payment to debt (c) because it is not of the same kind. He must deliver the thing agreed upon. (Art. 1244.)

Neither can he apply it to debt (d) which is not yet due unless there is a stipulation to the contrary or he has the benefit of the period.

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Art 1252- EXAMPLE D owes C as follows: (a) P1,500 payable on September 5; (b) P1,200 payable on September 20 (c) A specific table worth P 2,000.00 to be delivered on Sept. 20; and (d)P1,000.00 payable on October 15. On Sept. 20, D paid C P 1,500.00. Can D apply the payment to the following debts: Debt (a)=? Debt (b) = ? Debt (c)= ? Debt (d)= ?

An application of payment made by the debtor without objection from the creditor is binding upon the latter. His acquiescence is equivalent to an agreement and has the force and efficacy of a contract. If D does not make a choice, C can make the designation in the receipt with the consent of D. D may change the application made by C. Note that the law says “if the debtor accepts” (par. 2.), which implies that he has the liberty to reject also. The acceptance by D of the receipt given by C is regarded by the law as contract in itself independent of the principal obligation. His acquiescence to the application made by C amounts to an assent to such application, which he may no longer revoke or change, “unless there is a cause for invalidating the contract” (Art. 1252, par. 2.) as where the consent of D in accepting the receipt was vitiated by reason of fraud, mistake, etc. (see Art. 1330.) If C does not make the application in the receipt or no receipt was issued by him, then the legal rules in Article 1254 will govern.

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Art 1252- CASE ILLUSTRATION FACTS: D executed in favor of C a promissory note promising to pay the latter P5,000.00, the unpaid balance of the purchase price of a lot sold to D, and the interest thereon. The note is secured by a bond for P5,000.00 executed by S (surety) in favor of C. When the obligation became due and demandable, S paid C P5,000.00. Subsequently, C tried to recover from D the accrued interest on the P5,000.00.

ISSUE: Did C waive his right to the interest when he accepted only P5,000.00 from S?

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HELD: No. The liability of S under the surety bond is limited to P5,000.00. There was, therefore, no waiver or condonation of the interest due. D is relying on Article 1253, but the rules contained in Articles 1252 to 1254 apply to a person owing several debts of the same kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular; his (S’s) liability is confined to such obligation, and cannot be extended beyond the terms of the contract, and he is entitled to have all payments made by him applied exclusively to said obligation and to no other.

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A P P L I C AT I O N O F P A Y M E N T S

Art 1253 ART. 1253. If the debt produces interest, payment of

the principal shall not be deemed to have been made until the interests have been covered.

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APPLICATION OF PAYMENTS

ART 1253

Int e rest e a rne d pa id a he a d of p r in c ip al. The rule laid down in the article is mandatory. Hence, the debtor cannot choose to credit his payment to the principal before the interest is paid. The payment must be applied first to the interest and whatever balance is left, must be credited to the principal. The creditor can refuse an application of the debtor made contrary to the provision of Article 1253. The rule is subject, however, to any agreement between the parties, or to waiver by the creditor. In this sense, Article 1253 is merely directory.

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A P P L I C AT I O N O F PAY M E N T S ART 1253

SUBJECT TO AGREEMENT OR WAIVER 01 In a contract involving installment payments with interest chargeable against the remaining balance of the obligation, it is the duty of the creditor to inform the debtor of the amount of interest that falls due and that he is applying the installment payments to cover said interest; otherwise, the creditor cannot apply the payments to the interest and then hold the debtor in default for non-payment of installments on the principal.

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02 It has been held that a party to a contract who unqualifiedly and unconditionally accepts the settlement of his claim for damages without reservation as to interest or any other further claim from the other party, is estopped from claiming interest thereafter. But a creditor who accepts payment from a surety of the amount of a bond does not thereby waive his right to recover from the debtor the interest due on said amount.

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A P P L I C AT I O N O F P A Y M E N T S

Art 1254 ART. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the

debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. © 2018 Slidefabric.com All rights reserved.

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A P P L I C AT I O N O F PAY M E N T S ART 1254

APPLICATION WHERE PRECEDING RULES CANNOT BE APPLIED OR INFERRED 01 Application to most onerous debt or to all debts proportionately.

02 When a debt more onerous than the other.

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

A debt is more onerous than another when it is more burdensome to the debtor. No fixed rule can be laid down in determining which debt is more onerous to the debtor since the condition of being more burdensome is a question of relative appreciation. The Supreme Court, however, in various decisions has given some rules which can be followed or used as a guide to determine whether one debt is more burdensome than another.

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A P P L I C AT I O N O F PAY M E N T S ART 1254

Guide in the Determination if Debt is More Burdensome than the Other (Instances laid down by the Supreme Court) 01 An interest-bearing debt is more onerous than a non-interest bearing debt even if the latter is an older one. 02 A debt as a sole debtor is more onerous than as a solidary debtor. 03 All things being equal, older debts are more onerous. 04 Debts secured by a mortgage or by pledge are more onerous than unsecured debts. © 2018 Slidefabric.com All rights reserved.

05 In a case, the unpaid rentals due from the purchaser of property occupied by him were held more onerous than the balance of the price of the property the provisional sale of which was cancelled by the seller for non-payment of installments.

06 Of two interest-bearing debts, the one with a higher rate is more onerous. 07 An obligation with a penalty clause is more burdensome than one without penalty clause. S L I D E

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Art 1254- CASE ILLUSTRATION FACTS: To guarantee the faithful compliance by B (buyer) with his obligation under a conditional purchase and sale of six (6) trawl boats, C executed performance bonds in favor of S (seller). In a suit filed by S against B and C for failure of B to pay the amortizations, the lower court rendered a decision in favor of S. C contended, among other things, that the court had erred in not applying the sum of P10,000.00 paid as down payment on two (2) boats by B to S to the guaranteed indebtedness, reasoning that under Article 1254 of the Civil Code, where there is no imputation (application) of payment made by either the debtor or creditor, the debt which is the most onerous to the debtor shall be deemed to have been satisfied; hence, the amount paid as down payment on its two (2) boats should be applied to the guaranteed portion of the debt.

HELD: No. “The rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing several debts of the same kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular, which in this case is the full and faithful compliance with the terms of the contract of conditional purchase and sale of reparations goods. x x x.” (Reparations Commission vs. Universal Deep-Sea Surety and Fidelity Co., Inc., 83 SCRA 764 [1978].)

ISSUE: Is this contention tenable?

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TENDER OF PAYMENT AND CONSIGNATION ART 1261

Where debts subject to different burdens Suppose the debts are subject to different burdens (like one debt secured by a mortgage and the other with a penalty clause) that it cannot be definitely determined which debt is most onerous to the debtor. To what debt should the payment be applied?

ANSWER: To all of them proportionately.

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PAY M E N T B Y C E S S I O N

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

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SPECIAL FORMS OF PAYMENT

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

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PAYMENT BY CESSION

ART 1255 REQUISITES OF PAYMENT BY CESSION 01 There must be two or more creditors;

02 The debtor must be (partially) insolvent;

03 The assignment must involve all the properties of the debtor; and

04 The cession must be accepted by the creditors.

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PAYMENT BY CESSION

ART 1255 EFFECT OF PAYMENT BY CESSION Unless there is a stipulation to the contrary, the assignment does not make the creditors the owners of the property of the debtor and the debtor is released from his obligation only up to the net proceeds of the sale of the property assigned. (Art. 1255.) In other words, the debtor is still liable if there is a balance.

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PAY M E N T B Y C E S S I O N ART 1255

Article 1255 refers to contractual assignment The assignment of property under Article 1255 refers to voluntary or contractual assignment which requires the consent of all the creditors as distinguished from legal or judicial assignment which is governed by the Insolvency Law. (Sec. 8, Act No. 1956, as amended.)

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It merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same voluntarily.

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PAY M E N T B Y C E S S I O N ART 1255

DACION EN PAGO VS PAYMENT BY CESSION DACION EN PAGO

PAYMENT BY CESSION

-there is usually only one creditor

-there are several creditors

-does not presuppose the insolvency of the debtor or a situation of financial difficulties

-the debtor is insolvent at the time of assignment

-does not involve all the property of the debtor

-extends to all the property of the debtor subject to execution

-the creditor becomes the owner of the thing given by the debtor

-the creditors only acquire the right to sell the thing and apply the proceeds to their credits pro rata

-is really an act of novation

- Is not an act of novation.

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PAY M E N T B Y C E S S I O N ART 1255

Dacion en pago and payment by cession are both substitute forms of payment or performance. They are governed by the law on sales. © 2018 Slidefabric.com All rights reserved.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Art 1256 Consignation alone shall produce the following cases:

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

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SPECIAL FORMS OF PAYMENT

Tender of payment - The act, on the part of the debtor, of offering to the creditor the thing or amount due.

- The debtor must show that he has in his possession the thing or money to be delivered at the time of the offer.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Requisites of a valid tender of payment 01

Tender of payment must comply with the rules

on payment (Art. 1256- 1258). The tender, even if

02

It must be unconditional and for the whole

amount.

valid, does not by itself produce legal payment, unless it is completed by consignation.

03

It must be actually made. The manifestation of a

desire or intention to pay is enough.

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SPECIAL FORMS OF PAYMENT

Consignation -

The act of depositing the thing or amount due with the proper court when the creditor does not desire or cannot receive it, after complying with the formalities required by law.

-

It is always judicial and generally requires a prior tender of payment.

-

Exception: 5 cases enumerated under Art. 1256 (2).

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Requisites of a valid consignation 01

Existence of a valid debt which is due (Art. 1256

02

Tender of payment by the debtor and refusal

par. 1)

without justifiable reason by the creditor to accept it.

03

04

Previous notice of consignation to persons

interested in the fulfillment of the obligation (Art.

Consignation of the thing or sum due (Art. 1258,

par. 1); and

1257 par. 1)

05

Subsequent notice of consignation made to the

interested parties.

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EXAMPLES (1) D owes C a sum of money. On the due date of the obligation, D offers to pay the obligation but C refuses to accept the payment without any justifiable reason. In this case, D’s obligation will not be extinguished until he has made a valid consignation. (2) D entered into a contract with C. D is given the right to cancel the contract upon payment of P1,000 to C. In this case, D has no existing debt to C. The amount of P1,000 is not owed by D, being merely the consideration for the exercise of his right to cancel the contract. Hence, consignation of the P1,000 is not necessary. Tender of payment in good faith is sufficient to entitle D cancellation.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Art 1257 ART. 1257. In order that the consignation of the thing

due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. © 2018 Slidefabric.com All rights reserved.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Art. 1257 PRIOR NOTICE TO PERSONS INTERESTED

CONSIGNATION MUST COMPLY WITH PROVISIONS ON PAYMENT

-

In the absence of a prior notice to the persons interested in the

fulfillment

mortgagees,

of the solidary

obligation (such debtors,

solidary

as

guarantors,

creditors),

the

consignation, as payment, shall be VOID.

- Consignation, to be valid, must also comply with the provisions which regulate payment (Arts. 1233, 1239, 1246, 1248, 1249, 1253.)

-

Rationale: to give creditor the chance to reflect in his previous refusal to accept payment considering that the expenses of consignation shall be charged against him (Art. 1259) and that in case of loss of the thing consigned, he shall bear the risk thereof (Art.1262). © 2018 Slidefabric.com All rights reserved.

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Tender of Payment and Consignation

Legal Tender

(Art. 1249)

Legal tender is that currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount. In the Philippines, all coins and notes issued by the Bangko Sentral ng Pilipinas constitute legal tender for all debts, both public or private

up to P100 © 2018 Slidefabric.com All rights reserved.

up to P1000 BSP Circular No. 537

up to any amount S L I D E

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Art 1258 ART.

1258.

Consignation

shall

be

made

by

depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall be notified thereof. © 2018 Slidefabric.com All rights reserved.

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TENDER OF PAYMENT AND CONSIGNATION ART 1258

Consignation must be with proper judicial authority -

Consignation, by depositing the thing or sum due with the proper judicial

authority (i.e., court), is necessary to effect payment. It cannot be elsewhere (e.g., bank) unless otherwise prescribed by special law (e.g., Pres. Decree No. 25, re rental).

-

A written tender of payment alone, without consignation in court of the sum due, does not suspend the accruing of regular or monetary interest.

-

Where an obligor, however, fails to make a consignation after a valid tender of payment, the court may allow him time to pay the obligation without rescinding the contract.

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TENDER OF PAYMENT AND CONSIGNATION ART 1258

Consignation must be with proper judicial authority -

The consignation has a retroactive effect. The payment is deemed

to have been made at the time of the deposit of the thing in court or when it was placed at the disposal of the judicial authority.

-

RATIONALE: To avoid making the performance of an obligation more onerous to the debtor by reason of causes not imputable him.

(Ramos vs. Sarao, 451 SCRA 103 [2005].)

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TENDER OF PAYMENT AND CONSIGNATION ART 1258

Notice to be given to interested parties of consignation made -

After the consignation has been made, the interested parties must

also be notified thereof.

-

Rationale: to enable the creditor to withdraw the thing or sum deposited in case he accepts the consignation

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In summary, notice before (Art. 1257) and after (Art. 1258) deposit must be made. Otherwise, the obligation remains and the consignation is VOID.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Art 1259 ART. 1259. The expenses of consignation when

properly made, shall be charged against the creditor.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n

Art 1259 Creditor bears the expenses of consignation properly made -The consignation is made necessary because of the fault or unjust refusal of the creditor to accept payment, thus, it is but just that the expenses should be charged against him.

- If the consignation is not properly made, the expenses are chargeable to the debtor. © 2018 Slidefabric.com All rights reserved.

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Te n d e r o f P a y m e n t a n d C o n s i g n a t i o n ART 1259

Cases that consignation deemed properly made 01

When the creditor accepts the thing or sum

02

When the creditor questions the validity of the

deposited, without objection, as payment of the

consignation, and the court, after hearing, declares

obligation (Art. 1260, par. 2.);

that it has been properly made; and

03

When the creditor neither accepts nor questions

the validity of the consignation, and the court after

hearing, orders the cancellation of the obligation. (Art. 1260, par. 1)

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Art 1260 ART. 1260. Once the consignation has been duly made,

the debtor may ask the judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before the judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. © 2018 Slidefabric.com All rights reserved.

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TENDER OF PAYMENT AND CONSIGNATION

ART 1260

Withdrawal by debtor of thing or sum deposited Debtor may withdraw as a matter of right the thing or sum deposited 01 Before the creditor has accepted the consignation or

02 Before a judicial declaration that the consignation has been properly made, as he is still the owner of the same. In such a case, the obligation shall remain in force. All expenses are paid by the debtor.

The observance of all the requisites of consignation operates as a valid payment; hence, the debtor can move for cancellation of the obligation by the court. © 2018 Slidefabric.com All rights reserved.

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Art 1261 ART. 1261. If the consignation having been made,

the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may

have

over

the

thing.

The

co-debtors,

guarantors, and sureties shall be released.

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TENDER OF PAYMENT AND CONSIGNATION ART 1261

Effect of withdrawal with authority of creditor Since consignation is for the benefit of the creditor, he may authorize the debtor to withdraw the deposit after he has accepted the same or after the court has issued an order cancelling the obligation. As far as the debtor and the creditor are concerned, their relations will remain as they were before acceptance or cancellation. However, the creditor shall lose every preference which he may have over the thing, and the co-debtors (referring to solidary debtors), guarantors, and sureties shall be released.

The solidary debtors are released only from their solidary liability, but not from their shares of the obligation, since unlike guarantors and sureties, they are also principal debtors.

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EXAMPLES (1) D is indebted to C in the sum of P10,000.00 with G as the guarantor. On the due date of the obligation, D offered payment but C refused to accept the same. So, D made a consignation. Subsequently, D withdrew the deposit after securing the consent of C. Under Article 1261, C shall lose whatever preference he may have over the amount and G, the guarantor, shall be released.

(2) If, in the example given, D and G are solidarily liable to C, G is released only from his solidary liability but he is still liable to C for P5,000.00, his share in the obligation.

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Special Forms of Payment – Case Illustrations

Filinvest v. Phil. Acetylene, 111 SCRA 421 Citizens Surety v. CA, 162 SCRA 738 Soco v. Militante, 123 SCRA 160 Immaculata v. Navarro, 160 SCRA 211

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