OBLICON

JARDINEL, NICOLE B.
BA-11

I. Focus Questions

A. Define the following: (5 pts)

(1) Payment – means not only the delivery of money but also the performance, in any manner, of an obligation.
(Art. 1232)
a. In ordinary parlance, payment refers only to the delivery of money.
b. As a legal mode of extinguishing an obligation, it has a much wider meaning. Payment may
consist of not only in the delivery of money but also the giving of a thing (other than money),
the doing of an act, or not doing of an act.

(2) Dation in Payment – (adjudication or dacion en pago) is the conveyance of ownership of a thing as an
accepted equivalent of performance. (Art. 1245)
a. It is a special form of payment because it is not the ordinary way of extinguishing an obligation.
An existing debt in money is satisfied, not by payment of money (Art. 1244) but by alienation
of property.

(3) Application of Payment – 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 (1) and the same creditor. (Art. 1252, par. 1)

(4) Payment by Cession – is another special form of payment. It is the assignment or abandonment of all the
properties of the debtor for the benefit of his creditors in order that the latter mat sell the same and apply the
proceeds thereof to the satisfaction of their credits. (8 Manresa 321.)
a. The assignment may be voluntary or conventional assignment.

(5) Consignation – is 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. Consignation is
applicable when there is a debt or an obligation to pay. It is always judicial and it generally requires a prior tender
of payment which is, by its very nature, extrajudicial. (Art. 1256, par. 1)

B. Discussions:
(1) When is partial performance of an obligation allowed?

Partial performance of an obligation is allowed when:

a) When the debt is liquidated in part and unliquidated in part;

b) When the parties agreed on partial compliance;
c) When the nature of the obligation is that it cannot be done in one instance;
d) Solidary obligations where the debtors are bound by different terms and conditions;
e) Joint debtors who are bound to deliver their respective shares only.

(2) Give the requisites of: (10 pts)

(a) Dation in Payment
a) Instead of the original prestation, another prestation is performed;
b) The original prestation that is due and the one performed are different;
c) The parties agreed that the performance of the different prestation extinguishes the
obligation.
 (b) Payment by Cession
a) There must be two or more debts;
b) There must be two or more creditors;
c) There must be one debtor who is insolvent;
d) The debtor must abandon his properties in favour of the creditors;
e) The creditors must accept the abandonment in their favor.

(c) Application of Payment

a) There are two or more debts;
b) The debtor and the creditor in such obligations are the same;
c) The obligations must be of the same kind;
d) The obligations are all due and demandable; and
e) The payment made is not sufficient to pay all obligations.

II. Exercises / Learning Activities

A. Problem Analysis:

(1) D (debtor) owes C (creditor) P10,000 with G as guarantor. On the due date of the obligation, T a third person,
offered to pay the obligation of D. Can C legally refuse to accept the payment? How about an offer of
payment from G? Why? (5pts)

Yes, C can legally refuse to accept the payment of T. According to Article 1236 (par. 1), the creditor is to
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. The third person may have the payment of P10,000 but the creditor may
insist on his right on the liability of debtor. There is no stated any specified requirement or stipulation for T in the
problem. Furthermore, creditor should not be compelled to accept payment form a third person due to personal
reason.
Yes, C can legally accept the payment from G, the guarantor, who is a person that has an interest on the
obligation. Regarding to Article 1236, the guarantor has the interest in the obligation which may lead to creditor’s
acceptance of payment from G.

(2) Mr A borrowed P10,000 from Mr B payable on June 5, 2013. Later, Mr A borrowed P20,000 from B payable
on June 10, 2013. On June 5, 2013, Mr A delivered P10,000 to B designating the debt that is payable on June
10, 2013 as the debt that is being paid. Is the designation of Mr A binding on Mr B? Why? (5pts)

No, the designation of Mr. A is not binding on the creditor. Mr. A cannot compel Mr. B to accept the
application of payment because what he is paying is less than the amount that is due on June 10, 2013. According
to Article 1248, creditors cannot be compelled to accept partial payment. The creditor may accept but the obligation
will not be extinguished until the debtor comply with the whole of the obligation. Even so he cannot be required to
make partial payments if he does not wish to do so.

III. Assignments

CASE DIGEST:
(1) Paculdo v Regalado, 345 SCRA 134; (5pts)

I. Facts of the Case

Petitioner Nereo Paculdo and respondent Bonifacio Regalado entered into a contract of lease over a parcel
of land. Aside from the lease, petitioner leased eleven (11) other property from the respondent, ten (10) of which
was located within the Fairview compound, while the eleventh was located along Quirino Highway Quezon City.
Petitioner also purchased from respondent eight (8) units of heavy equipment and vehicles.

On account of petitioner’s failure to pay rent for the month of May and the monthly rental for the months
of June and July the respondent sent two demand letters to petitioner demanding payment of the back rentals, and
if no payment was made within fifteen (15) days from the receipt of the letter, it would cause the cancellation of the
lease contract. Without the knowledge of petitioner, respondent mortgaged the land subject of the lease contract,
including the improvements which petitioner introduced into the land amounting to Monte de Piedad Savings Bank,
as a security for a loan. Respondent refused to accept petitioner’s daily rental payments.

II. Decisions Made

(1) Lower Court

On January 31, 1994, the Metropolitan Trial Court, Quezon City rendered a decision in favor of respondent, the
dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, as follows:

"1. Ordering the defendant and all persons claiming right under him to vacate the leased premises located
at Don Mariano Marcos Avenue, Fairview Park, Quezon City, Metro-Manila covered by Transfer Certificate
of Title RT-6883 of the Registry of Deeds of Quezon City;

"2. Ordering the defendant to pay the sum of P527,119.27 representing the unpaid monthly rentals as of
June 30, 1992 plus 2% interest thereon;

"3. Ordering the defendant to pay the sum of P450,000.00 a month plus 2% interest thereon starting July
1992 and every month thereafter until the defendant and all persons claiming right under him shall have
actually vacated the premises and surrender possession thereof to the plaintiff;

"4. Ordering the defendant to pay the sum of P5,000,000.00 as and for attorney’s fees; and

"5. Ordering the defendant to pay the costs of suit.

"SO ORDERED."

(2) Appellate Court

In time, petitioner appealed to the Regional Trial Court, Quezon City, Branch 220.11

On February 19, 1994, respondent, with the support of fifty (50) armed security guards forcibly entered the property
and took possession of the wet market building.12

On July 6, 1994, the Regional Trial Court, Quezon City, Branch 220 rendered a decision affirming in toto the decision
of the Metropolitan Trial Court, to wit:
"WHEREFORE, the appealed decision dated January 31, 1994, for being in accordance with the evidence presented
and the law on the matter, is hereby affirmed in toto.

"Let a writ of execution issue against defendant and his surety, to answer for the decision of the lower court."13

On the same day, the Regional Trial Court issued a writ of execution14 whereupon, petitioner vacated the subject
premises voluntarily. By July 12, 1994, petitioner had completely turned over possession of subject property to
respondent.

Meanwhile, on July 21, 1994, petitioner filed a petition for review with the Court of Appeals. He alleged that he had
paid the amount of P11,478,121.85 for security deposit and rentals on the wet market building, but respondent,
without his consent, applied portions of the payment to his other obligations. The vouchers and receipts indicated
that the payments made were for rentals. Thus, at the time of payment petitioner had declared as to which
obligation the payment must be applied.

On February 10, 1995, the Court of Appeals promulgated its decision finding that petitioner impliedly consented to
respondent’s application of payment to his other obligations and, thus, dismissed the petition for lack of merit.
On March 3, 1995, petitioner filed a motion for reconsideration; however, on February 9, 1996 the Court of Appeals
denied the motion.

(3) Supreme Court

The decision of the Court of Appeals was based on a misapprehension of the facts and the law on the application of
payment. Hence, the ejectment case subject of the instant petition must be dismissed, without prejudice to the
determination and settlement of the money claims of the parties inter se.

WHEREFORE, the Court GRANTS the petition. The Court REVERSES and SETS ASIDE the decision of the Court of
Appeals in CA-G. R. SP No. 34634.

ACCORDINGLY, the Court REVERSES the decision of the Regional Trial Court, Quezon City, Branch 220 in Civil Case
No. 94-20813, and dismisses the complaint filed with the Metropolitan Trial Court, Quezon City, Branch 36 in Civil
Case No. MTC XXXVI-7089.

No costs.

SO ORDERED.

III. Personal Evaluation

As found by the lower court there was a letter sent by respondent to petitioner, on November 19, 1991,
which states that petitioner’s security deposit for the Quirino lot, be applied as partial payment for his account under
the subject lot as well as to the real estate taxes on the Quirino lot. In an earlier letter, dated July 15, 1991,
respondent informed petitioner that the payment was to be applied not only to petitioner’s accounts under the
subject land and the Quirino lot but also to the heavy equipment. In Article 1252 of the Civil Code, the right to specify
which among his various obligations to the same creditor is to be satisfied first rest with the debtor. In the case at
bar, at the time petitioner made the payment, he made it clear to respondent that they were to be applied to his
rental obligations on the Fairview wet market property. Though he entered into various contracts and obligations
with respondent, all the payments made, about P11,000,000.00 were to be applied to rental and security deposit on
the Fairview wet market property. However, respondent applied a big portion of the amount paid by petitioner to
the satisfaction of an obligation which was not yet due and demandable- the payment of the eight heavy equipment.
According to law, if the debtor did not declare at the time he made the payment to which of his debts with the
creditor the payment is to be applied; the payment has to be applied first to the debt which is most onerous to the
debtor. The lease over the Fairview wet market is the most onerous to the petitioner in the case at bar.
Consequently, the petition is granted.

(2) Far East Bank 7 Trust Company v. Diaz Realty, Inc. 363 SCRA 359. (5pts)

I. Facts of the Case

Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of P720,000 at 12% interest
p.a. which was increased thereafter. The said loan was secured with a real estate mortgage over two parcels of land
owned by Diaz Realty, herein respondent. Subsequently, the loan account was purchased by the petitioner Far East
Bank (FEBTC). Two years after, the respondent through its President inquired about its obligation and upon learning
of the outstanding obligation, it tendered payment in the form of an Interbank check in the amount of P1,450,000
in order to avoid the further imposition of interests. The payment was with a notation for the full settlement of the
obligation.

The petitioner accepted the check but it alleged in its defense that it was merely a deposit. When the
petitioner refused to release the mortgage, the respondent filed a suit. The lower court ruled that there was a valid
tender of payment and ordered the petitioner to cancel the mortgage. Upon appeal, the appellate court affirmed
the decision.

II. Decisions Made

(1) Lower Court

After trial, the court a quo rendered judgment on August 6, 1993, the dispositive portion of which reads as follows:
'WHEREFORE, judgment is hereby rendered as follows:

'1. The plaintiff and defendant shall jointly compute the interest due on the P1,057,000.00 loan from April 18, 1985
until November 14, 1988 at 12% per annum (IBAA Salazar Case Supra).

'2. That the parties shall then add the result of the joint computation mentioned in paragraph one of the dispositive
portion to the P1,057,000.00 principal.

'3. The result of the addition of the P1,057,000.00 principal and the interests arrived at shall then be compared with
the P1,450,000.00 deposit and if P1,450,000.00 is not enough, then the plaintiff shall pay the difference/deficiency
between the P1,450,000.00 deposit and what the parties jointly computed[;] conversely, if the P1,450,000.00 is
more than what the parties have arrived [at] after the computation, the defendant shall return the difference or the
excess to the plaintiffs.
'4. The defendant shall cancel the mortgage.

'5. Paragraph eight of the Lease Contract between Allied Bank and the plaintiffs in which the defendant's
predecessor, Pacific Banking gave its conformity (Exh. 'H') is hereby cancelled, so that the rental should now be paid
to the plaintiffs.

'6. The defendant shall pay the plaintiffs the sums:

'6-A. Fifteen thousand pesos as attorney's fees.

'6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary damages.

'6-C. The cost of suit.

'SO ORDERED."

(2) Appellate Court

"Upon a motion for reconsideration filed by defendant FEBTC and after due notice and hearing, the court a quo
issued an order on October 12, 1993, modifying the aforequoted decision, such that its dispositive portion as
amended would now read as follows:
'IN VIEW WHEREOF, the decision rendered last August 6, is modified, accordingly, to wit:
'1. The plaintiff and defendant shall jointly compute the interest due on the P1,167,000.00 loan from April 18, 1985
until November 14, 1988 at 12% per annum.

'2. That the parties shall then add the result of the joint computation mentioned in paragraph one above to the
P1,067,000.00 principal.

'3. The result of the addition of the P1,067,000.00 principal and the interests arrived at shall then be compared with
the P1,450,000.00 money market placement put up by the plaintiff with the defendant bank if the same is still
existing or has not yet matured.

'4. The defendant shall cancel the mortgage.

'5. Paragraph eight of the lease contract between Allied Bank and the plaintiff in which the defendant['s
predecessor], Pacific Banking gave its conformity (Exh. 'H') is hereby cancelled and deleted, so that the rental should
now be paid to the plaintiff.

'6. The defendant shall pay the plaintiff the sums:

'6. A Fifteen [t]housand [p]esos as attorney's fees;

'6. B Cost of suit."

(3) Supreme Court

The Petition is not meritorious.

First Issue: Tender of Payment

Second Issue: Nature of the Transfer of Respondent's Account
Third Issue: Applicable Interest Rate
Fourth Issue: Status of Mortgage Contract

WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals is AFFIRMED with
the following modifications: Respondent Diaz Realty Inc. is ORDERED to pay Far East Bank and Trust Co. its principal
loan obligation in the amount of P1,067,000, with interest thereon computed at 20 percent per annum until
November 14, 1988, less any interest payments made to PaBC, petitioner's assignor. Thereafter, interest shall be
computed at 12 percent per annum until fully paid.

SO ORDERED.
III. Personal Evaluation.

Petitioner resolutely argues that the CA erred in upholding the validity of the tender of payment made by
respondent. What the latter had tendered to settle its outstanding obligation, it points out, was a check which could
not be considered legal tender. We opposed from the petition as the records show that petitioner bank purchased
respondent's account from PaBC in December 1986, and that the latter was notified of the transaction only on March
23, 1988. Thereafter, Antonio Diaz, president of respondent corporation, inquired from petitioner on the status and
the amount of its obligation. He was informed that the obligation summed up to P1,447,142.03. On November 14,
1988, petitioner received from respondent Interbank Check No. 81399841 dated November 13, 1988, bearing the
amount of P1,450,000, with the notation "Re: Full Payment of Pacific Bank Account now turn[ed] over to Far East
Bank." The check was subsequently cleared and honored by Interbank, as shown by the Certification it issued on
January 20, 1992.

It is a fact, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor
may validly refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting
a check as payment. In... other words, the creditor has the option and the discretion of refusing or accepting it. In
the present case, petitioner bank did not refuse respondent's check. On the contrary, it accepted the check which,
it insisted, was a deposit. As earlier stated, the check proved to be fully funded and was in fact honored by the
drawee bank. Moreover, petitioner was in possession of the money for several months. In other words, tender of
payment is the definitive act of offering the creditor what is due him or her, together with the demand that the
creditor accept the same.

Finally, petitioner points out that, in any case, tender of payment extinguishes the obligation only after
proper consignation, which respondent did not do. The argument does not persuade. For a consignation to be
necessary, the creditor must have refused, without just cause, to accept the debtor's payment. However, as pointed
out earlier, petitioner accepted respondent's check. Accepting the tendered check and converting it into money,
petitioner is presumed to have accepted it as payment. To hold otherwise would be inequitable and unfair to the
obligor.

The transfer of credit from Pacific Bank to the petitioner did not involve an effective novation but an
assignment of credit. As such, the petitioner has the right to collect the full value of the credit from the respondent
subject to the conditions of the promissory note previously executed.