Art.

1242 - Payment made in good faith to any person in possession of the credit shall
release the debtor.
Person in possession of the credit - presumed to own the credit
If paid in good faith by debtor - released from debt
Does not matter if creditor willfully, unintentionally or negligently
allowed a 3rd person to possess credit
As far as the debtor is concerned
Risk is on creditor provided that payment was made in good
faith by debtor
If payment made to person not in possession of credit - debtor will not be
released from his obligation (regardless of good faith)

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.
Protect other creditors of debtor
Prevent any transaction to defraud creditors
Debtor prohibited from paying a particular creditor during eectivity of court
order prohibiting him to make such a payment
In the event paid - does not extinguish obligation - payment invalid

Art. 1244 - The debtor of a thing cannot compel the creditor to receive a dierent 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, as act or forbearance cannot be substituted by
another act or forbearance against the obligees will.
Unless prestation is alternative/facultative - debtor has no choice to pay
except what is agreed upon.
e.g. Cannot give particular car if promised to give a particular jeep
Even if jeep is more expensive

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 on sales.
Dation in payment or Dacion en Pago
A delivery and transmission of ownership of a thing by debtor to
creditor as accepted equivalent of the performance of obligation
Mere possession in order to secure payment and not for
purpose of transferring ownership is not a dation in payment
Requisites:
1. There must be the performance of the prestation in lieu of
payment (animo solvendi) which may consist in the delivery of a

corporeal thing or a real right or a credit against the third person

2. There must be some dierence between the prestation due
and that which is given in substitution (aliud pro alio)
3. There must be an agreement between creditor and debtor
that the obligation is immediately extinguished by reason of
the performance of a prestation dierent from that due
Only extinguishes obligation totally when the parties, by agreement,
express or implied, or by their silence, consider the thing as equivalent
to the obligation
Can be judged by intention of contracting parties and
contemporaneous and subsequent acts
Dacion en Pago v. Pactum Commisorium
Dacion - before creditor becomes owner of property, an
intervening agreement subsequent and independent from the
original contract is entered into to have the property
collateralized in the original agreement as payment for the
debt, thereby extinguishing the obligation
Pactum - parties agree, generally in one single contract that,
in the event of failure to pay, the mortgaged or pledged property
shall automatically be appropriated or owned by the creditor
Void for violating Art. 2088 of the Civil Code (creditor
cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation is null and
void)
Property made as security for loan must always be
foreclosed or subjected to a sale by public hearing in
case it shall be used to satisfy the debt
Elements:
1. There must be a creditor/debtor relationship
between parties
2. The property of the debtor was used as security
for the loan, as a mortgage or pledge
3. There was automatic appropriation of the
property upon failure of the debtor to pay the
obligation
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
Obligations must be complied with in good faith
Any act not consistent with an obligations goals or purposes should be
discouraged
e.g. obligor, not rich, bound to deliver a rented car for a wedding - obligee
cannot demand obligor deliver a multi-million peso Rolls Royce

Art. 1247 - Unless it is otherwise stipulated, the extra-judicial expenses required by

the payment shall be for the account of the debtor. With regard to judicial costs, the
rules of court shall govern.
Creditor = benefit from obligation - should not spend for extra-judicial
expenses
Art. 1248 - Unless there is an express stipulation to that eect, the creditor cannot be
compelled partially to receive the prestation in which the obligation exists. Neither
may the debtor be required to make partial payments.
However, when the debt is part liquidated and in part unliquidated, the creditor may
demand and the debtor may eect the payment of the former without waiting for the
liquidation of the latter.
Partial payment may be made if there is an express stipulation by the parties
allowing the same or if the debt is partially liquidated and partially
unliquidated
e.g. Debtor bound to pay 1000 and whatever money from the estate of
dead father - creditor may demand already the 1000 without waiting for
liquidation of the fathers estate
Partial payment may be eective if the creditor accepts partial payment and
benefits from it
Creditor cannot be considered in delay if refuses to accept partial
performance
Exception - If good faith necessitates acceptance or if creditor
abuses his right - he will incur delay
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 eect 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.
RA 529 - Old uniform currency act - prohibited use of foreign currency in the
Philippines
Stipulation to use foreign currency may be void, but the
obligation/contract may still be made valid
Repealed by RA 8183 (July 6, 1996) - can agree that the obligation shall
be settled in any other currency at the time of payment
Promissory note - unconditional promise in writing made by one to another,
signed by the maker, engaging to pay on demand or at a fixed determinable
future time
Bill of exchange - unconditional order in writing addressed by one person to

another signed by the person giving it, requiring person addressed to pay on
demand or at a fixed or determinable future
Cheque - drawn on a bank - payable on demand
Used to be invalid as tender, however:
If fully funded and oered or tendered and obligee
accepts cheque as payment after obliger informed that
it had been given to settle and obligation - estops
obligee from future ecacy of such tender
Must not be stale (6 mos.) - if drawer cannot withdraw (of
debtor withdraws) - obligation persists
When through fault of creditor, they have been impaired - good as cash
Law is strict - only cash will extinguish obligation - other will not extinguish unless encashed
Art. 1250 - In case of extraordinary inflation or deflation of the currency stipulated
should intervene, 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.
e.g. Post WW1 Germany
Needs declaration by Central Bank or DOF
Not just high cost of living
Not applicable to eminent domain - only applies to where a
contract/agreement is involved
Agreement to the contrary - will take into account value or currency at time of
payment not at time of establishment of obligation
Par value - value of currency
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 delay, the
additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.