Application Of Payments Flashcards
What is the general rule o , - in application payments?
ART. 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 ap- plied. 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 con- tract.
Meaning ofapplication of payments
Application of payments 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 and the same creditor.
Requisites of application of payments.
The requisites are:
(1) There must be one debtor and one creditor;
(2) There must be two or more debts;
(3) The debts must be of the same kind;
(4) The debts to which payment made by the debtor has been
applied must be due; and
(5) The payment made must not be sufficient to cover all the debts.
Application as to debts not yet due.
The application of payments as to debts not yet due cannot be made unless:
(1) there is a stipulation that the debtor may so apply; or
(2) it is made by the debtor or creditor, as the case may be, for whose benefit the period has been constituted.
Rules on application of payments
They are as follows:
(1) The debtor has the first choice; he must indicate at the time of making payment, and not afterwards, which particular debt is being paid. (see Powell vs. Phil. National Bank, 54 Phil. 54 [1929].) If, in making use of his right, the debtor applied the payment to a debt, he cannot later claim that it should be applied to another debt.
(2) The right to make the application once exercised is irrevocable unless the creditor consents to the change (see Bachrach Garage and Taxicab Co. vs. Golingco, 39 Phil. 918 [1919]; Kander vs. Dannug, [C.A.] 43 O.G. No. 8, p. 3176.);
(3) It is clear from the use of the word “may’’ rather than the word “shall’’ in Article 122 that the debtor’s right to apply payment is not mandatory but merely directory. If the debtor does not apply payment, the creditor has the subsidiary right to make the designation by specifying in the receipt which debt is being paid;
(4) If the creditor has not also made the application, or if the application is not valid (par. 2.), the debt, which is most onerous to the debtor among those due, shall be deemed to have been satisfied (Art. 1254, par. 1.);
(5) If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (Ibid., par. 2.); and
(6) If neither party has exercised its option and there is disagree- ment as to debts to which payment must be applied, the court will ap- ply the payment according to the justice and equity of the case, taking into consideration all its circumstances. (Premiere Development Bank vs. Central Surety & Insurance Co., Inc., 579 SCRA 359 [2009].)
The rules in Articles 1252 to 1254 apply to a person owing several debts of the same kind to a single creditor. They are not applicable to a person whose obligation as a mere surety is both contingent and singular.
Facts: D executed in favor of C a promissory note promising to pay the latter P5,000.00, the unpaid balance of the purchase price of a lot sold to D, and the interest thereon. The note is secured by a bond for P5,000.00 executed by S (surety) in favor of C.
When the obligation became due and demandable, S paid C P5,000.00. Subsequently, C tried to recover from D the accrued interest on the P5,000.00.
Issue: Did C waive his right to the interest when he accepted only P5,000.00 from S?
No. The liability of S under the surety bond is limited to P5,000.00. There was, therefore, no waiver or condonation of the interest due.
D is relying on Article 1253, but the rules contained in Articles 1252 to 1254 apply to a person owing several debts of the same kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular; his (S’s) liability is confined to such obligation, and cannot be extended beyond the terms of the contract, and he is entitled to have all payments made by him applied exclusively to said obligation and to no other.
Rules in the application of interest
ART. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the inter- ests have been covered.
How are payments applied to the most onerous debts?
A debt is more onerous than another when it is more burdensome to the debtor.
1) An interest-bearing debt is more onerous than a non-interest bearing debt even if the latter is an older one. (Menzi & Co. vs. Quing Chuan, 69 Phil. 46 [1939].)
(2) A debt as a sole debtor is more onerous than as a solidary debtor.
3) an unsecured debt is more onerous than a secured debt
4) All things being equal, older debts are more onerous.
5) Debts secured by a mortgage or by pledge are more onerous than unsecured debts
(6) Of two interest-bearing debts, the one with a higher rate is more onerous.
(7)An obligation with a penalty clause is more . burdensome than one without penalty clause.
Facts: To guarantee the faithful compliance by B (buyer) with his obligation under a conditional purchase and sale of six (6) trawl boats, C executed performance bonds in favor of S (seller). In a suit filed by S against B and C for failure of B to pay the amortizations, the lower court rendered a decision in favor of S.
C contended, among other things, that the court had erred in not applying the sum of P10,000.00 paid as down payment on two (2) boats by B to S to the guaranteed indebtedness, reasoning that under Article 1254 of the Civil Code, where there is no imputation (application) of payment made by either the debtor or creditor, the debt which is the most onerous to the debtor shall be deemed to have been satisfied; hence, the amount paid as down payment on its two (2) boats should be applied to the guaranteed portion of the debt.
Issue: Is this contention tenable?
Held: No. “The rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing several debts of the same kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular, which in this case is the full and faithful compliance with the terms of the contract of conditional purchase and sale of reparations goods.
Suppose the debts are subject to different burdens (like one debt secured by a mortgage and the other with a penalty clause) that it cannot be definitely determined which debt is most onerous to the debtor. To what debt should the payment be applied?
To all of them proportionately.
Rules on application of payments
- The right to designate the debt to which the payment shall be applied belongs primarily to the debtor. He may declare at the time of making the payment, to which the same must be applied
- If the debtor does not apply the payment, the creditor may designate which debt is paid by specifying in the receipt
- If the creditor did not apply or if application is void, the debt which is most onerous to the debtor 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
