Debt-Payment Obligations under the Philippine Civil Code

(Articles 1156-1304, focus on Arts. 1232-1271)

1. Overview

An obligation is a juridical necessity to give, to do, or not to do (Art. 1156). Payment or performance (pago) is the principal mode by which obligations—especially money debts—are extinguished (Art. 1232). Although the term “payment” evokes cash, the Code treats it broadly: any voluntary, complete, and proper fulfillment of what is due, whether a sum of money, the delivery of a determinate thing, or the rendering of a service.

2. Requisites for a Valid Payment

Identity – the very prestation agreed upon must be delivered or performed (Art. 1244).
Integrity (Completeness) – payment must be in full; the creditor cannot be compelled to accept partial performance (Art. 1248) unless:
- there is express stipulation,
- the debt is partly liquidated and partly unliquidated, or
- the obligation is joint (each debtor liable only for his share).
Capacity & Authority – payment must be made by a person who can validly dispose of the thing and to the creditor, his successor-in-interest, or an authorized third person (Arts. 1240-1241).
Proper Time & Place – follow the stipulation; otherwise, at the domicile of the debtor (Art. 1251) and when the obligation becomes due and demandable (Arts. 1179-1180).

3. Who May Pay

Payor	Effect
Debtor himself	Obligation extinguished.
*Third person with* debtor’s consent**	Extinguishes the debt; payor acquires right of reimbursement and legal subrogation (Art. 1302[1]).
*Third person without* debtor’s consent**	Payment valid; payor can only recover insofar as the debtor was benefited (Art. 1236 ¶2).
Unauthorized or incapacitated third person	Voidable; creditor ratification cures the defect (Art. 1241 ¶2).

4. To Whom Must Payment Be Made

Creditor or his successor (heir, assignee).
Any person authorized by creditor (express or implied).
Good-faith payment to possessor of credit (person in possession of the credit document) is valid, even if that possessor later turns out to have no right (Art. 1242).
Payment to an incapacitated creditor is valid only insofar as he is actually benefited (Art. 1241 ¶1).

5. Object of Payment

5.1 Money Debts

Payment must be in Philippine legal tender (notes or coins issued by the Bangko Sentral ng Pilipinas).
Check, promissory note, or digital transfer is not payment but only a promise or order to pay; the obligation is discharged only upon encashment or acceptance without protest (jurisprudence: Pioneer Insurance).
Extraordinary Inflation or Deflation – if there is an officially declared extraordinary change in purchasing power, the value at the time of establishment of the obligation controls, unless the parties agreed otherwise (Art. 1250).

5.2 Thing or Service

The debtor cannot compel the creditor to accept a different thing or service, even if of equal or greater value (Art. 1244).

6. Application (Appropriation) of Payments (Arts. 1252-1254)

Debtor’s Choice – upon making payment, debtor may declare which debt is being paid among several homogeneous debts.
Creditor’s Choice – if debtor makes no application, creditor may accept and appropriate the payment in the receipt before or at the time of acceptance.
Legal Application – if neither party applies, the payment is applied to the most onerous debt; if equal, proportionately.
Interest First, Then Principal (Art. 1253) – payment of principal is not deemed made until all due interest is covered.

7. Special Forms of Payment

7.1 Dación en Pago (Art. 1245)

Transfer of ownership of property in lieu of money; nature: objective novation—requires creditor’s acceptance.

7.2 Payment by Cession (Art. 1255)

Debtor assigns all his property to his creditors so they may sell and apply proceeds; does not extinguish the debt beyond the net proceeds unless so agreed.

7.3 Assignment of Credits

Debtor may assign his credit against a third person to the creditor; governed by Arts. 1624-1635.

8. Tender of Payment and Consignation (Arts. 1256-1261)

Step	Description
Tender of Payment	Debtor actually offers complete payment; must be unconditional and for the whole amount.
Consignation	Deposit of the thing or sum with proper court when creditor unjustly refuses, is absent, unknown, incapacitated, or when multiple claimants appear, etc.
Requisites for Valid Consignation	(1) Debt due, (2) Prior tender (except in excused cases), (3) Notice of consignation to interested parties, (4) Actual deposit, (5) Subsequent notice after deposit.
Effects	(a) Obligation extinguished from the time deposit is accepted or adjudged valid, (b) debtor may withdraw consignation before acceptance by creditor, thereby reviving the obligation; after acceptance, withdrawal needs creditor’s consent.

9. Loss or Impossibility (Arts. 1262-1269)

Fortuitous loss of a specific thing due without debtor’s fault extinguishes the obligation.
Loss of a generic thing does not: genus nunquam perit.
Debtor in delay bears even fortuitous loss (Art. 1165).

10. Interest Rules & Usury

Interest must be expressly stipulated in writing (Art. 1956).
Absent agreement, legal interest applied by courts is 6 % p.a. from Judicial Rules of Court.
Usury ceilings were lifted in 1983 (CB Circular 905), but interest may still be reduced if “unconscionable” (Art. 1229; case law: Spouses Abella v. Spouses Sevilla, 2022).

11. Joint vs. Solidary Debts (Arts. 1207-1222)

Joint – each debtor pays only his share; insolvency of one does not increase the others’ liability.
Solidary – creditor may demand entire obligation from any debtor; the payor has right of reimbursement pro-rata from co-debtors plus interest (Art. 1217).
Payment by a solidary debtor inures to the benefit of all; prescription of action for reimbursement is ten years from payment.

12. Conditions, Periods, Alternative & Facultative Obligations

Suspensive condition – payment cannot be demanded until condition occurs (Art. 1181).
Suspensive period/term – debt exists but is demandable only when period arrives (Art. 1196). Debtor may lose the benefit of the period in cases under Art. 1198 (e.g., insolvency, impairment of securities).
Alternative obligation – debtor may completely extinguish by rendering one of the prestations, unless the right of choice belongs to creditor (Arts. 1199-1205).
Facultative – only one prestation is due; another is given merely as a substitute option (Art. 1206).

13. Other Modes of Extinguishment vs. Payment

Compensation – mutual debts extinguish each other to the concurrent amount (Arts. 1278-1290).
Novation – substitution of obligation/new debtor/new creditor (Arts. 1291-1304).
Confusion or Merger – debtor becomes creditor of himself (Art. 1275).
Remission or Condonation – gratuitous abandonment of the debt by creditor (Arts. 1270-1277).
Prescription – action to collect a written contract debt prescribes in 10 years; unwritten in 6 years (Art. 1144).

14. Proof & Presumptions of Payment

Receipt signed by creditor is prima facie proof (Art. 1242).
Creditor’s possession of the private document of credit gives rise to presumption of payment (Art. 1271).
Delivery of promissory note signed by debtor and accepted by creditor cancels original debt only upon payment of note (Art. 1249).
If creditor accepts partial payment without protest, balance remains; receipt “for the balance” raises presumption that prior installments are paid.

15. Interaction with Special Laws & Regulations

BSP Circular 1535 (2022) – defines digital legal tender rules and caps on coin payments (₱1-₱5 coins legal up to ₱1,000; ₱10-₱20 coins up to ₱2,000).
Truth in Lending Act (RA 3765) – requires disclosure of finance charges; non-compliance may bar collection of undisclosed interest.
Retail Trade Liberalization Act & Consumer Act protect borrowers in consumer credit transactions.
Financial Rehabilitation and Insolvency Act (FRIA, RA 10142) – rehabilitative stay suspends payment enforcement while plan is pending.

16. Insolvency, Cession & Preferences

In insolvency or rehabilitation, payment priorities are governed by Arts. 2241-2251 (special vs ordinary preferred credits).
Payments made after the issuance of a stay order may be annulled.

17. Selected Supreme Court Doctrines

Case	G.R. No. / Date	Doctrine
Pioneer Insurance v. CA	84197, 05 Apr 1990	Check is not legal tender; debt extinguished only when actually cashed.
PNB v. CA (Spouses Sps. Uy)	12111, 09 Nov 1993	Deposit of checks in escrow counts as consignation if requisites met.
Spouses Abella v. Spouses Sevilla	236061, 28 Mar 2022	Courts may reduce unconscionable interest even after usury ceilings were lifted.
DCB Finance v. CA	127102, 27 Oct 1999	Acceptance of late partial payment without reservation may constitute waiver of default.
Nacar v. Gallery Frames	189871, 13 Aug 2013	Judicial legal interest rate is 6 % p.a. whether for loans or damages, compounded annually until satisfaction.

18. Practical Take-Aways

Put agreements in writing, particularly interest and alternative modes of payment.
Use legal tender or secure creditor’s written acceptance of non-cash instruments.
If creditor refuses payment, tender and consign promptly to halt interest and avoid default.
For multiple debts, declare application of payment in the receipt itself.
Monitor BSP regulations on digital-wallet transfers and legal-tender limits.

19. Conclusion

Payment is the lifeblood of commercial and civil relations. The Philippine Civil Code—supplemented by special statutes, BSP circulars, and a century of Supreme Court jurisprudence—establishes detailed rules ensuring that debts are extinguished fairly, definitively, and with legal certainty. Mastery of these provisions equips creditors and debtors alike to structure transactions, document terms, and resolve disputes with confidence.