SUBsection 1 application of payments

Application of Payment (Art. 1252)

If a debtor has several similar debts to one creditor, the debtor may choose which debt the payment applies to at the time of payment.

If the creditor issues a receipt applying the payment and the debtor accepts it, the debtor cannot later object.

Requisites of Application of Payment

mnemonics: OTAP

1. One debtor and one creditor

2. Two or more debts of the same kind

3. All debts are due

4. Payment is not enough to cover all debts

Rules on application of payments

mnemonics: DCOP

1. DEBTOR chooses first which debt the payment applies to.

2. If the debtor does not choose → CREDITOR may apply it in the receipt.

3. If neither applies → payment goes to the most ONEROUS DEBT.

4. If debts are equally burdensome → payment is divided PROPORTIONALLY.

Most Onerous Debt

The debt that is the most burdensome or disadvantageous to the debtor among several debts owed to the same creditor

Interest must be paid first (Art. 1253)

If a debt has interest, payment is applied to the interest first before the principal.

Default rule when payment application is unclear (Art. 1254)

If payment cannot be applied by the usual rules, it goes to the most onerous debt; if debts are equally burdensome, payment is divided proportionally.

Examples of most onerous debt to the debtor

Mnemonics: PISOS

1. Debt where debtor is PRINCIPAL rather than guarantor/surety.

2. Debt with INTEREST rather than without.

3. SECURED debt rather than unsecured.

4. OLDEST debt (if incurred at different dates).

5. Debt where debtor is SOLIDARY debtor rather than sole debtor.