Obligations on Debt Payment under the Civil Code of the Philippines

(Book IV, Title I — “Obligations and Contracts,” Arts. 1156-1304, with emphasis on Arts. 1232-1304)

Quick orientation The Civil Code’s starting premise is that “every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith” (Art. 19). All rules on paying debts are ultimately applications of that principle.

1. Payment or Performance (Arts. 1232-1251)

Key Point	Civil Code Provision(s)	Essentials / Doctrines
Definition	Art. 1232	Payment is not limited to delivery of money; any act that extinguishes the obligation as agreed (e.g., delivery of a thing, rendering a service) is “payment.”
Requisites of a Valid Payment	Arts. 1240-1244	must be (1) made by the proper party (debtor, agent, or third person in certain cases); (2) to the proper creditor or one authorized to receive; (3) of the thing or service stipulated; (4) at the time and place agreed, or as provided by law.
Currency / Legal Tender	Art. 1249; BSP Circulars; R.A. 7653 & R.A. 8183	Money debts must be paid in Philippine legal tender. A creditor may refuse checks or foreign currency unless previously agreed.
Substantial vs. Strict Compliance	Arts. 1235-1236	Slight deviations do not extinguish the obligation if the creditor accepts the performance without protest.
Who May Pay	Arts. 1236-1238	• Debtor or any person in his name. • A third person with debtor’s consent may recover what he paid; without consent, he has only right to reimbursement up to debtor’s benefit.

Indivisibility and Partial Payments

Art. 1248: The creditor cannot be compelled to accept partial payments, unless stipulation or usage allows. Conversely, the debtor cannot be forced to split the debt if the prestation is indivisible.

2. Application (Imputation) of Payments (Arts. 1252-1254)

Debtor’s right of designation. When multiple debts of the same kind exist, the debtor may specify which one he is paying at the time of payment.
Creditor’s acceptance with reservation. If the debtor makes no designation, the creditor may apply the payment—but must note it in the receipt; otherwise, the law decides.
Legal order (Art. 1253): Interest is deemed paid first before principal.
Oldest & most onerous debt rule (Art. 1254): Absent stipulation/choice, payment is applied to the most onerous, or, if equal, to the oldest.

3. Special Modes of Extinguishing by Payment

Mode	Civil Code Article(s)	Highlights
Dation in Payment (Dación en Pago)	Art. 1245	• Delivery & transfer of ownership of property to creditor in satisfaction of a money debt. • Nature: sale with debtor as seller and creditor as buyer, governed subsidiarily by the law on sales. • Requires creditor’s acceptance; novates the obligation.
Payment by Cession	Arts. 1255-1257	• Debtor assigns all his properties to creditors for liquidation. • Debtor is released only up to the net proceeds of sale, unless parties agree otherwise. • Differs from insolvency under special laws (FRIA of 2010).
Consignation (Judicial Deposit)	Arts. 1256-1258	When allowed: (a) creditor unjustly refuses tender; (b) absent/unknown creditor; (c) incapacitated creditor; (d) multiple claimants; (e) debt lost but proof exists. Steps: tender → notice → deposit with court → notice after deposit → creditor acceptance or court judgment. Proper consignation = extinguishes obligation; improper = debtor still liable.
Tender of Payment	Jurisprudence (e.g., Spouses Abella v. CA)	Mere offer to pay; does not extinguish debt unless followed by consignation. Shows debtor’s good faith and stops running of interest if properly made and proven.

4. Time, Place, and Manner of Payment

Time Art. 1169: Debtor incurs delay (mora solvendi) when obligation is demandable & demand is made, unless demand is unnecessary (e.g., obligation fixes a date, performance would be useless, reciprocal obligations where both parties must perform simultaneously).
Place Art. 1251: Default rule is debtor’s domicile at time obligation was constituted; if the obligation is to deliver a specific thing, then where the thing was at the time of constitution. Parties may stipulate otherwise.
Expenses of Payment Art. 1247: Debtor bears payment expenses unless agreed otherwise.

5. Persons Entitled to Deliver and Receive Payment

Party	Codal Basis	Rules
Debtor / Payor	Arts. 1236-1238	• Payment by third person in debtor’s name and with consent allows reimbursement. • Natural obligations: if third party pays without debtor’s consent, he can demand reimbursement only up to debtor’s benefit.
Creditor / Payee	Arts. 1240-1241	• Payment to creditor, his successor-in-interest, or any authorized person extinguishes the debt. • Payment to incapacitated creditor is valid only insofar as it benefited him. • Payment to a possessor of the credit (e.g., indorsee of promissory note) is valid if debtor acted in good faith.

6. Effects of Inflation or Deflation (Art. 1250)

“Extraordinary inflation or deflation of the currency, which supervenes the obligation, shall be taken into consideration according to the agreement of the parties, and, in the absence thereof, by the courts.”
Extraordinary = unusual or beyond normal fluctuations, determined case-by-case (e.g., oil crisis years, hyper-inflation periods); ordinary swings are ignored.

7. Interest and Penalties

Type	Source of Obligation	Legal Requisites
Monetary interest	Arts. 1956-1959 (Loans)	Interest is not due unless expressly stipulated in writing; otherwise, any payment of “interest” becomes a donation needing formalities.
Compensatory interest	Arts. 2200-2209 (Damages)	May be awarded for forbearance of money or in case of delay; rate usually 6 % per annum (judicial rate), unless law or stipulation provides otherwise.
Penal clauses	Arts. 1226-1231	Penalty substitutes damages & interest if there is breach, unless debtor proves force majeure or creditor accepts the prestation. Courts may equitably reduce penalties when they are iniquitous or partially performed.

8. Extinguishment Other Than Payment (For Context)

Although payment is the primary mode, debts may also be extinguished by:

Loss of thing due (Art. 1262)
Condonation or remission (Art. 1270)
Confusion or merger (Art. 1275)
Compensation (Arts. 1278-1290) – legal set-off when parties are debtor-creditor of each other, if requisites concur.
Novation (Arts. 1291-1304) – substitution or change of object, principal conditions, or parties.

9. Prescription of Actions

Written contracts: 10 years (Art. 1144).
Oral contracts & quasi-contracts: 6 years (Art. 1145).
Actions upon judgment: 10 years.
Running is interrupted by (a) filing suit, (b) written extrajudicial demand, or (c) written acknowledgment of debt.

10. Selected Supreme Court Decisions Illustrating Principles

Case (Year)	Doctrine / Holding
Spouses Abella v. CA (G.R. 164571, 2009)	Tender of payment must be unconditional and for the full amount; without consignation, obligation subsists.
Veloso v. CA (G.R. 118644, 1997)	Dación en pago requires mutual agreement; creditor cannot be compelled to accept property in lieu of money.
Heirs of Malate v. Gamboa (G.R. 170139, 2010)	Extraordinary inflation must be proven; courts will not presume it.
Development Bank of the Phils. v. NLRC (G.R. 79351, 1987)	Payment to an unauthorized person does not extinguish obligation unless creditor ratifies or is benefited.

(Dates and docket numbers are indicative; always verify from official reports when citing in pleadings.)

11. Practical Tips for Lawyers and Debtors/Creditors

Document everything — written receipts, acknowledgments, and application of payments avoid litigation.
Insist on full tender if consignation is contemplated. Courts dismiss consignation suits for failure to tender or incomplete amounts.
Use appropriate interest clauses. Specify rate, basis (per annum), and whether compounded; otherwise, court defaults may apply.
Check special laws. E.g., the Consumer Act, Truth in Lending Act, and BSP circulars can supplement or override Civil Code rules on commercial transactions.
Mind prescription deadlines. Sending a notarized demand letter can interrupt running of the prescriptive period.

Final Word

The Civil Code’s framework on debt payment balances debtor protection (e.g., need for legal tender, prohibition on partial payments being forced) with creditor rights (e.g., ability to refuse checks, insist on agreed currency, penalties). Because jurisprudence and special statutes constantly refine these rules, practitioners should read the codal provisions together with the latest Supreme Court decisions and relevant legislation. Still, the foundational articles summarized here remain the backbone of Philippine law on satisfying and extinguishing monetary obligations.