Article 1176 vs. Article 1253

There is a need to analyze and harmonize Article 1176 and Article 1253 of the Civil Code to determine whether the daily payments made after the second loan's maturity should be credited against the interest or against the principal.

Article 1176 provides that:
"The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

On the other hand, Article 1253 states:
"If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered."
The above provisions appear to be contradictory but they in fact support, and are in conformity with, each other. Both provisions are also presumptions and, as such, lose their legal efficacy in the face of proof or evidence to the contrary.

Article 1176 falls under Chapter I (Nature and Effect of Obligations) while Article 1253 falls under Subsection I (Application of Payments), Chapter IV (Extinguishment of Obligations) of Book IV (Obligations and Contracts) of the Civil Code.

The structuring of these provisions, properly taken into account, means that Article 1176 should be treated as a general presumption subject to the more specific presumption under Article 1253. Article 1176 is relevant on questions pertaining to the effects and nature of obligations in general, while Article 1253 is specifically pertinent on questions involving application of payments and extinguishment of obligations.

A textual analysis of the above provisions yields the results we discuss at length below:

The presumption under Article 1176 does not resolve the question of whether the amount received by the creditor is a payment for the principal or interest. Under this article, the amount received by the creditor is the payment for the principal, but a doubt arises on whether or not the interest is waived because the creditor accepts the payment for the principal without reservation with respect to the interest. Article 1176 resolves this doubt by presuming that the creditor waives the payment of interest because he accepts payment for the principal without any reservation.

On the other hand, the presumption under Article 1253 resolves doubts involving payment of interest-bearing debts. It is a given under this article that the debt produces interest. The doubt pertains to the application of payment; the uncertainty is on whether the amount received by the creditor is payment for the principal or the interest. Article 1253 resolves this doubt by providing a hierarchy: payments shall first be applied to the interest; payment shall then be applied to the principal only after the interest has been fully-paid.

Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to the interest and not to the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the payment of interest is expressly stipulated) and (2) the principal remains unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment of the interest despite the presence of (1) and (2) above. In such case, the payments shall obviously be credited to the principal. (G.R. No. 194642, April 06, 2015)