Extinguishment of Obligations

Causes of extinguishment of obligations1. Payment or performance2. Loss of thing due3. Condonation or remission of debt4. Confusion or merger of rights of creditor and debtor5. Compensation6. Novation

Other causes:Annulment, rescission, fulfillment of resolutory condition and prescription

PAYMENT OR PERFORMANCE Payment is not only the delivery of money but also

performance of an obligation Fulfillment of prestation due, a fulfillment that

extinguishes the obligation by the realization of the purposes for which it was constituted

Juridical act which is voluntary, licit and made with the intent to extinguish and obligation

Requisite of payment:a. Person who paysb. Person to whom payment is madec. Thing to be paidd. Manner, time and place of payment

Tolentino Requisite:a. Identity of prestation – the very thing or service due

must be delivered or releasedb. Integrity – the prestation must be fulfilled completely

Kinds of payment:a. Normal – when debtor voluntarily performs the

prestation stipulatedb. Abnormal – when he is forced by means of judicial

proceedings, either to comply with the prestation or pay indemnity

How payment is made:a. There must be delivery of the thing or rendition of the

service that was contemplatedb. Obligation to do or not to do, an act or forbearance

cannot be substituted by another act or forbearance against the obligee’s will

c. In obligation to a generic thing whose quality and circumstance 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 in consideration

d. If the obligation is in monetary, payment must be made in legal tender

Time of payment must be on the date stipulated Proof of payment devolves upon the debtor who offers

such a defense to the claim of the plaintiff creditor Issuance of receipt is a consequence of good faith and

usage and refusal thereof is a ground of consignation

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 oblige. It must be slight, technical and unimportant and must

not pervade the whole or material Non-performance of a material part of a contract will

prevent the performance from amounting to a substantial compliance

But if in bad faith (knowingly and willfully) pays to perform perform his contract in any respect, or omits to perform a material part of it, cannot be permitted to compel the other party to perform.

The party who has substantially performed may enforce specific performance or recover damages.

The other part may by an independent action or counterclaim recover from the first party the damages which he has sustained by the latter’s failure to completely fulfill his obligation.

The party who has received the benefit of substantial compliance cannot require the performance of the residue as a condition precedent to his liability

The payment or performance must be complete. Except:a. If the obligation has been substantially performed in

good faith, the obligor may recover as though there had been strict and complete fulfillment, less damages suffered by the obligee (1233)

b. When the obligee accepts the performance knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with (1235)

Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

Partial payments may be made in the following:a. The creditor cannot be compelled to receive, and debtor

cannot be compelled to make, partial payments, except:1. When there is an agreement to that effect (1248)2. 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. (1428)

The unliquidated part, once it is finally determined, must also be paid, to extinguish the obligation

A person entering into a contract has a right to insist on its performance but if chooses to waive any of the terms introduced for his own benefit, he may do so. He is not obliged to accept anything else in place of that which he has contracted for; and if he does not waive this right the other party cannot recover against him without performing all the stipulations on his part

To constitute a waiver, there must be an intentional relinquishment of a known right.

There must have been acceptance of the defective performance with actual knowledge of the incompleteness or the defect, under circumstances that would indicate an intention to consider the performance as complete and renounce any claim arising from the defect

Estoppel of creditor – creditor cannot object because of defects in performance resulting from his own acts or directions. And where a party makes particular objections to the sufficiency of performance, he is estopped to later set up other objections

Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a)

Right of third person – a person who pays a debt for the account of another may recover from the debtor the sum so paid out, at least to the extent in which the payment may have been beneficial to the debtor. Such payment cannot be considered as payment of what is not due under Art. 2154, and cannot be recovered from the creditor by the person who paid; the right of the payor is against the debtor whose obligation he has paid.

The third person who paid another’s debt is entitled to recover the full amount he has paid

However, the limits his recovery to which the debtor benefited if the debtor has no knowledge of, or has expressed his opposition to such payment.

If debtor expressed his opposition to such payment by third person, the latter may only recover the amount that may have been beneficial to the creditor

(PRESCRIPTION) a partial payment made by a stranger of the obligation without the authorization of the debtor will not stay the running of the period of prescription with respect to the remainder of the debt

When a person has a right to repurchase certain property, payment by a third person of the repurchase price does not constitute a payment by third person under Art. 1236. Judgment creditor was not a debtor, he was under no obligation to repurchase the land from the vendee. Ha had the right to do so whether he exercised this right or not depended upon his own volition. Art. 1236 is not applicable. (Gonzaga vs. Garcia)

It is optional for the creditor to accept payment from a third person. If the debtor opposes the payment by a third person, the latter will be entitled to recover from the debtor only to the extent that the payment has benefited him. But as between debtor and creditor, the obligation is extinguished

Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a) The right to recover from the debtor is based on the

mere fact of payment and consideration of justice but it gives to the third person who paid only a simple personal action for reimbursement without the securities, guaranties, and other rights recognized in the creditor, which are extinguished by the payment.

In case where subrogation takes place by virtue of payment of the credit, the payor actually steps into the shoes of the creditor and becomes entitled, not only to recover what he has paid, but also to exercise all rights which the creditor could have exercised.

Subrogation of creditor – there is subrogation if the creditor willingly and spontaneously permit the third person who has paid to be subrogated in his rights, even without the consent of the debtor.

There is no provision of subrogation of creditor. The creditor may, however, assign his rights to a third person, but in such case the resulting rights and obligations of the There is no provision of subrogation of creditor. The creditor may, however, assign his rights to a third person, but in such case the resulting rights and obligations of the creditor and third person would be different from those arising from payment

Article 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. (n)(Self-explanatory)

Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on "Natural Obligations." (1160a)

Where the person paying has no capacity to make the payment, the creditor cannot be compelled to accept it. Consignation is not proper. In case he accepts it, payment will not be valid except in the case provided in art. 1427. (Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.) 

Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (1162a)

Repayment of a debt must be made to the person in whose favor the obligation is constituted, or to another authorized to receive the payment in his name

Authority may be legal (conferred by law) or conventional (when the authority has been given by the creditor himself, as when an agent is appointed to collect from the debtor)

Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be imputed to the latter except in cases provided in Art. 1241. Such wrong payment does not prejudice the creditor, and accrual of interest is not suspended by it.

Deposit of the amount in bank, in the name and to the credit of the creditor, without authorization of the latter, does not constitute payment; but when the creditor cannot be found in the place of payment, such deposit may be a valid excuse for not holding the debtor in default

Consignation in court, when properly made, extinguish the obligation, but where the creditor institutes an action for the collection of the amount of the obligation, with interest, and debtor deposits the amount in court, but in a different case which is separate and distinct in nature from which payment is demanded, such deposit does not amount to payment.

Article 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him.

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 rights;(2) If the creditor ratifies the payment to the third person;(3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. (1163a)

Payment to incapacitated person – when the creditor is incapacitated to receive payment, this must be made to his legal representative, if any. If none, then the debtor may relive himself of responsibility by delivering the thing to the court in consignation, by virtue of Art. 1256

Payment shall be considered as having benefited the incapacitated person, if he made an intelligent and reasonable use thereof, for purposes necessary or useful to him even if at the time of the complaint the effect of such use no longer exist.

Payment may be made to a third person (if creditor is incapacitated), the person who has paid, however, has the right to recover the payment from such third person. If he cannot recover such payment from such person, then he suffers loss

Debtor is not released from liability by a payment to one who is not the creditor nor one authorized to receive the payment, even if the debtor believed in good faith that he is the creditor, except to the extent that the payment inured to the benefit of the creditor

Payment to a third person releases the debtor in the following:a. When without notice of the assignment of credit, he

pays to the original creditor (1626)b. When in good faith, he pays to one in possession of

the credit (1242)

Even when the creditor receives no benefit from the payment to a third person he cannot demand payment anew, if the mistake of the debtor was due to the fault of the creditor.

If the creditor sends a signed receipt for payment by ordinary mail to the debtor, but happens to fall into the hands of a third person who presents it to the debtor and the latter pays on the strength of signed receipt, the debtor cannot be made to pay again to the creditor.

Article 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164)

Possession of credit – this is an exception to the rule that payment must be made to the creditor or his authorize representative

The person in possession of credit is neither the creditor nor authorized by him to receive payments, but appears, under the circumstances, to be the creditor, although in reality he may not be the owner

Must consider the nature of credit, forms of its transmission, manner in which it has been actually transferred and relation of the possessor of the credit to the obligation itself

Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165)

The debtor can always deliver the money in court by way of consignation and thus relieve himself of further liability

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

The debtor upon whom a garnishment order is served can always deposit the money in court by consignation, and thus relieve himself of further liability

If the action of the attaching or garnishing creditor fails, then garnishment is of no effect since it is only incidental or accessory to the main action.

Article 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. (1166a) Substitution of prestation – the debtor of a thing cannot

compel the creditor to receive a different one although

the latter may be of the same value than that which is due. Except when stipulated by the parties

Such case, there may be a dation in payment or novation Waiver of defects – defects of the thing delivered may

be waived by the creditor, if expressly declared or with knowledge thereof, he accepts the thing without protest or disposes of it or consumes it.

Who must make the payment: Payment must be made by the debtor who must possess

the following:a. The free disposal of the thing due – the property should

not be subject to any claim by or encumbrances in favor of third persons.

b. Capacity to alienate the thing – debtor must be capable of giving consent.

If debtor does not have free disposal and capacity to alienate, the payment shall not be valid except in cases provided by law (1239).

If payment is made, the guardian of the incapacitated person or the incapacitated person himself (when he regains or attains capacity) may seek annulment of payment.

In case the debtor does not have the free disposal of the thing due, the injured party may seek to recover payment.

Payment made by the debtor after court has ordered him to retain the debt (art. 1243) Payment made to the creditor by the debtor after

the debtor has been judicially ordered to retain the debt shall not be valid. The court order is known as garnishment

Payment by a third person The creditor is not bound to accept payment or

performance by a third person except:a. When there is stipulation to that effectb. When the third person has an interest in the

fulfillment of the obligation such as a guarantor or a co-debtor

Rights of a third person who makes the paymenta. Payment with knowledge and consent of the debtor

1. He can recover what he has paid (1236)2. He is entitled to be subrogated in the rights of

the creditor such as those arising from mortgage, guaranty or penalty (art. 1237)

b. Payment without knowledge or against the will of the debtor – he can recover only insofar as the

payment has been beneficial to the debtor. He is not entitled to subrogation

Payment by a third person who does not want to be reimburseda. The payment shall be deemed to be a donation

which requires the debtor’s consent (1238)b. If debtor does not consent, the payment shall still

be valid to the creditor who has accepted it. In such a case, the third person can only recover insofar as the payment has been beneficial to the debtor, he is also not entitled to subrogation. (1236 and 1237)

To whom shall payment be made1. To the creditor (person in whose favor the obligation has

been constituted)2. To the creditor’s successors-in-interest, such as heirs or

assigns3. To any person authorized to receive payment

Payment to an incapacitated creditorThe creditor must be capacitated to receive payment. If he is incapacitated, payment is not valid. Except in the following cases:a. If has kept the thing deliveredb. Insofar as the payment has been beneficial to him

Payment to an unauthorized 3rd personGr: Payment not validExcept:

a. If payment has redounded to the benefit of the creditor, w/c benefit need not to be proved in the ff:1. If after payment, the third person acquires the

creditor’s rights2. If the creditor ratifies the payment to the third

person3. If by the creditor’s conduct, the debtor has

been led to believe that the third person had authority to receive payment

b. If the payment is made in good faith to ta third person in possession of the credit. (1242) the third person should be both in possession of the instrument and the credit

Where payment must be made1. If stipulated, then place designated2. If no stipulation –

a. If obligation is to give a determinate thing, wherever the thing might be at the time of the obligation was constituted

b. If obligation is to give a generic thing or to do, hen at the domicile of the debtor (1251)

Special Forms of Payment1. Dation in payment2. Application of payment3. Payment by cession4. Tender of payment and consignation

“Dation in payment” – special form of payment where the ownership of property is transferred to his creditor pay a debt in money

Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. (n) Dation in payment extinguishes obligation to the extent

of the value of the thing delivered.Dation in payment AssignmentBoth are substitute forms of performance of an obligationDoes not involve plurality of creditors nor the whole of the property of the debtor

Involves plurality of creditors

Does not suppose a situation of financial difficulties, as it may be made even by an insolvent

Cannot be made by an insolvent

Merely involves a change of the object

Dation PledgePersonal property is deliveredPresumption is in favor of pledgeInvolves a lesser transmission of rights

Warranties of debtor – DP is an onerous contract of alienation, because object is given in exchange of the credit

If creditor is evicted from the thing given in dation in payment, the original obligation is not revived; but he is entitled to recover as a buyer for breach of the warranty against eviction

Error in payment – there can be no absolute confusion or identity between sale and dation in payment. If the debtor later proves he paid by mistake, he can recover, not the price by which the thing was apparently conveyed, but the very thing itself, because the person to whom it was delivered received it solely as a creditor

Article 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. (1167a)

If there is disagreement as to the quality the court should decide whether it complies with the obligation, taking into consideration the purpose and other circumstances of the obligation

The creditor or debtor may waive the benfit of this artice. The creditor may require a thing of inferior of quality and debtor may deliver a superior object, unless the price to be paid in the latter case is dependent upon the quality.

Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a)

Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a)

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

This article does not apply to obligations where there are several subjects or where the various parties are bound under different terms and conditions. Thus, in a joint obligation, one debtor may offer to pay only his share of the obligation, and the creditor cannot refuse the partial payment.

Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or

when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) Legal tender – currency which in a given jurisdiction can

be used for payment of debts, public and private and which cannot be refused by the creditor

So long as the notes were legal tender at the time they were paid or delivered, the person accepting them must suffer the loss if thereafter they became valueless

Where such money or currency was deposited with a bank or other person, the deposit must be considered as one with specification of currency, without the necessity of stating so, unless there is evidence to the contrary. When such currency became valueless, the depositor suffered the loss

The indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of judgment rather at the rate prevailing on the date of the defendant’s breach.

The delivery of notes or other commercial instrument shall produce the effects of payment only when they are collected, is applicable, not only to those instruments executed by third persons and delivered by the debtor himself and delivered to the creditor.

Upon non-payment of such note, the creditor may sue upon the original contract, as to which the action still subsists notwithstanding the delivery of the note

Payment by check may be validly refused by the creditor, even if such check may be good. Such rule applies even when payment is made to the court

An offer of the check in payment is not a valid tender of payment

Loss of value – 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

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (n) Extraordinary inflation/deflation is unusual or beyond

the common fluctuations in the value of the currency To determine payment when there has been great

fluctuation in the value of the currency, considering the circumstances to each particular case, to the principle of good faith in Art. 1315 under which to contracts are bound not only to the fulfillment of what has been expressly stipulated, but also to all the consequences

which according to their nature may be in keeping with good faith, usage and law

When the currency is devalued in terms beyond what could have been reasonably foreseen by the parties, the doctrine of unforeseen risk can be applied and the effects of the devaluation should not be borne by the creditor alone.

The revaluation of the credit must be made according to the principles of good faith and circumstances of the case and intent of the parties.

The fair and just rule to apply is, for the debtor to pay the actual value or worth of the loan at the time it was contracted in the currency in existence at the time of payment

Article 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. (1171a) In the absence of stipulation, performance must be

made at the place where the thing was located at the time the obligation was constituted. Such rule apply to obligation to do and to some determinate thing

Even if the thing is determinate but its existence at the place where it was when the obligation was constituted was temporary, the performance must be at the domicile of the debtor, unless otherwise provided

If the creditor incurs expenses in going to the domicile of the debtor, he should bear the expenses because the debtor cannot be made to shoulder the expenses since the law fixes the place of payment which is at the domicile of the debtor.

But if the debtor changes his domicile in bad faith or after he has incurred delay, then additional expenses shall be borne by him

It is only the additional expenses that are charged against him. This implies that where he has not transferred his domicile in bad faith or where he transferred before default he is not liable for the expenses.

Art. 1247 does not apply to the creditor’s expenses to collect at the debtor’s domicile

SUBSECTION 1. Application of Payments

Article 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a) In order for that the rules for application may be

applied, it is necessary that the obligations must all be due. Not only in case of mutual agreement or consent of the party in whose favor term was established, that payments may be applied to obligations which have not yet matured.

It is also necessary that the debts are of the same kind generally of a monetary character. This includes obligations which were not originally of a monetary character, but, at the time ok application of payment, had been converted into an obligation to pay damages by reason of breach or non-performance

The law grants to the debtor a preferential right to choose the debt to which his payment is to be applied because under equal circumstances the law favors the debtor.

But the right of the debtor is not absolute. He cannot impair the rights granted by law to the creditor.

The right to select the obligation to which a payment is to be applied must be exercised at the time when the debt is paid, and after the debtor has exercised it by indicating the debt to which his payment should be applied, he cannot later claim that it should be understood as applied to another debt

If debtor makes a proper application of payment, but creditor refuses to accept it because he wants to apply it to another debt, such creditor will incur in delay

If at the time of payment, the debtor does not exercise his right to apply it to any of his debts, the application shall be understood as provided as provided by law, unless creditor makes the application and his decision is accepted by the debtor

This application of payment can be made by the creditor only in the receipt issued at the time of payment

Once the debtor has accepted the application made by the creditor, the former cannot contest such application. It can only be changed by mutual agreement

But an application made by creditor without knowledge and consent of debtor is not binding upon the latter

The debtor may contest if there is a cause for invalidating the contract

Application of law is based on 1253 and 1254 The debtor and creditor, by agreement, can validly

change the application of payment already made, without prejudice to the rights of third persons acquired before such agreement

Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173)

Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)

Partial payments are to be applied first on account of the interest and then to reduce the principal

Interest in this article applies only to compensatory interest or that stipulated as earnings of the amount due under the obligation, but not to interest due because of delay or mora on the part of the debtor

Interest from delay is not part of the obligation but is an independent liability arising from non-performance

There should be no distinction between interest from delay and compensatory interest

In making an application of payments, the law considers particularly the interest of the debtor, as if the debtor himself were making the application

Application of Payment It is the designation of the debt to which payment shall

be applied when the debtor owe several debts in favor of the same creditor (1252)

Requisite:a. There must be two or more debtsb. The debts must be of the same kindc. The debts are owed by the same debtor to the same

creditord. All debts are due except:

i. When the parties have stipulated that payment may be applied to a debt not yet due or

ii. When the application is made by the party for whose benefit the term has been constituted

How application is madea. Debtor who is given the preferential right to apply the

payment designates the debt to be paidb. If the debtor does not make the designation, the

creditor makes it by indicating the debt being paid in his receipt. If the debtor accepts the receipt from the creditor, the debtor cannot complaint unless there is a just cause of invalidating the contract

c. If neither the debtor nor creditor makes the designation, or application cannot be inferred from the circumstances, payment hall be applied by operations of law as follows:1. Payment shall be applied to the debt, among those

due, which is the most onerous to the debtor.2. If the debts are of the same nature and burden,

payment shall be applied to all due debts proportionately

In all instances, if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered

SUBSECTION 2. Payment by CessionArticle 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) The assignment or cession contemplated by this article is

the abandonment of the universality of the property of the debtor for the benefit of his creditors in order that such property may be applied to the payment of the credits

Abandonment or assignment by the debtor of all his property in favor of his creditors so that the latter may sell them and recover their claims out of the credits

A voluntary assignment cannot be imposed upon a creditor who is not willing to accept it.

Such assignment does not have the effect of making the creditors the owners of the property of the debtor, unless there is an agreement to that effect

The assignment gives the creditors the right to proceed to the sale of the property, and to pay themselves in the

amount which the proceeds of the sale permit and in the manner agreed upon.

The unpaid amount remains due and demandable Assignment cannot include family home which is

reserved for certain beneficiaries but can include other properties exempt from execution, if the debtor waives the exemption

Payment by cession Dation in paymentOnly the possession and administration are transferred to the creditors with an authorization to convert the property into cash with which the debts shall be paid

Transfer of ownership over the thing alienated to the creditor

Only extinguishes the credits to the extent of the amount realize from the properties assigned, unless otherwise agreed upon

May totally extinguish the obligation and release the debtor

Involves all the property

Cession of only some specific thing

There are various creditor

There is only in favor of one creditor

SUBSECTION 3. Tender of Payment and Consignation

Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

Consignation alone shall produce the same effect in 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 same right to collect;(5) When the title of the obligation has been lost. (1176a)

Article 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. (1177)

Article 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 also be notified thereof. (1178) After this notice, the creditor may:

a. Accept the thing or amount deposited, in which case the matter or payment is terminated or

b. Refuse to accept the thing or amount, in which case a trial must be held to determinate the validity of the consignation

c. The creditor may ask the court to cancel the obligation after showing that the requisites of consignation have been complied

Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1179)

Article 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 a 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. (1180)

Article 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. (1181a)

Tender of payment – manifestation made by the debtor to the creditor of his desire to comply with his obligation, with the offer of immediate performance

Consignation – deposit of the object of the obligation in a competent court in accordance with the rules prescribed by law, after tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible or inadvisable

Tender of payment is preparatory act which precedes consignation. It does not cause the extinguishment of the obligation, unless contemplated by consignation. It is the consignation which constitutes a form of payment

Tender of payment by certified check is valid if the creditor makes no prompt objection, but this does not estop the latter from later demanding payment in cash

Tender of payment only part of the obligation, when the contract calls for full payment of the balance due upon default of an installment, may be validly refused

When tender f payment is made, the accrual of interest is suspended from the date of such tender

Requisites:a. There was debt dueb. Consignation of the obligation was made because of

some legal cause provided in art. 1256c. Previous notice of the consignation has been given to

the persons interested in the performance of the obligation

d. The amount or thing due was placed that the disposal of the court

e. After the consignation had been made, the persons interested were notified thereof

For consignation be valid, the creditor must have refused without just cause to accept payment, or that there be some other legal cause. Mere consignation without one of these causes do not produce the effect of releasing the debtor

Unjust refusal by the creditor, it must be shown that:a. There was previous tender of payment, without which

the consignation is ineffectiveb. The tender of payment was of the very thing due, or in

case of money obligation, that legal tender currency was offered

c. The tender of payment was unconditionald. The creditor refused to accept payment without just

cause

Debtor’s right to withdraw the sum or thing consigneda. Before acceptance by the creditor of the

consignation or the declaration by the judge that the consignation has been properly made – the debtor may withdraw the sum or thing consigned as a matter of right. Such withdrawal produces the following effects:1. Obligation shall remain in force2. Co-debtors, guarantors and sureties are not

releasedb. After acceptance by the creditor of the consignation

or declaration by the judge that the consignation has been properly made – the debtor may withdraw only with the consent of the creditor. Such withdrawal will produce the following effects:1. Obligation shall be revived2. Creditor shall lose every preference which he

may have over the thing

3. Guarantors and sureties are released unless they consented. If there are several debtors and their obligation is solidary, such obligation will become a joint obligation

Consignation, without previous tender of payment, will produce the same effect:a. When the creditor is absent or unknown or does not

appear at the place of paymentb. When he is incapacitated to receive payment at the time

it is duec. When, without just cause, he refuses to give a receiptd. When two or more persons claim the same right to

collecte. When the title of the obligation has been lost

Effects of Consignationa. Debtor is released in the same manner as if he had

performed the obligation at the time of the consignation, because this produces the same effect as a valid payment

b. Accrual if interest is suspendedc. Deteriorations or loss of thing or amount consigned

without fault of debtor must be borne by creditor, because the risk of the thing are transferred to creditor from the moment of deposit

d. Any increment or increase in value of the thing after the consignation inures to the benefit of the creditor