SECTION 1 c) In application of payments, if the several

PAYMENT OR PERFORMANCE debts are equally onerous

ART. 1232: Payment means not only the delivery of money but also the INDIVISIBLITY: performance in a single act.
performance, in any other manner of an obligation. EXCEPTION:
a) Express stipulation
 Payment or performance is the normal, the perfect more of b) Prestations which necessarily entail partial
extinguishment of obligations performance.
 Every obligation looks to payment or performance as the manner of c) If debt is liquidated in part and unliquidated
its extinguishment. In this sense, therefore, all the other modes are in part
abnormal d) Joint divisible obligations
e) Solidary obligations in which debtors are
PAYMENT: proper term for obligations to give bound under different terms or conditions
PERFORMANCE: for obligations to do or not to do. f) In compensation when a balance is left
g) If the work is to be delivered partially, the
RULES OF PAYMENT/PERFORMANCE price for each part having been fixed, price
REQUISITES: also payable partially.
I. THE PRESTATION: h) Several guarantors who demand division
SPECIFIC- the very thing or service must be delivered or i) Impossibility or extreme difficulty of single
performed performance.
GENERIC- the prestation must be neither inferior nor II. THE PARTIES (SUBJECTIVE)
superior in quality. A. THE PAYOR:
MONEY DEBTS: without need of creditor’s consent:
a) Payment must be in the currency stipulated. If there is no a. Debtor/obligor himself
such stipulation, it must be in Philippine Currency. b. His heir or assignee
b) Payment in negotiable paper c. His agent
- Must be refused by creditor; d. Anyone interested in fulfillment of obligation (guarantor)
- Provisional only until encashed or impaired through With creditor’s consent:
the creditor’s fault (Manager/Cashier’s check are a. Anyone
not an exception to this rule)
- Revaluation in case of extraordinary inflation or EFFECT OF PAYMENT BY THIRD PERSON:
deflation. a) WITH DEBTOR’S CONSENT: subrogation
EXCEPTION TO THE RULE EXCEPTION: if third person indented it as donation
a) Dacion de pago b) WITHOUT DEBTOR’S CONCENT: reimbursement to the
b) Novation extent of the benefit

INTEGRITY: the entire prestation must be performed. B. THE PAYEE

EXCEPTION: a. the creditor/oblige himself
a) Substantial performance in good faith b. his successor or transferee
b) Waiver by creditor/oblige c. his agent
d. a third person
 - provided if redounded to creditor’s benefit and only to  If the breach of the obligation is not serious or
the extent of such benefit substantial, the obligee/creditor cannot avail himself of
- if falling under 1241, Par. 2 benefit deemed to be total Art. 1191
e. anyone in possession of the credit  If there has been breach but the debtor has made
substantial performance, such substantial
III. TIME AND PLACE performance precludes substantial breach and
TIME: when due therefore the right of resolution.
PLACE:  The operation of Art. 1234 prevents the
i. PRIMARY RULE: stipulation application of Art. 1191
ii. SECONDARY RULE: place where thing was at time of ART. 1235: When the obligee accepts the performance, knowing its
constitution of obligation. If obligation is to deliver incompleteness or irregularity, and without expressing any protest or
determinate thing objection, the obligation is deemed fully complied with.
iii. TERTIARY RULE: debtor’s domicile
4 SPECIAL FORMS OF PAYMENT EXCEPTION: the rule or requirement of integrity is for the
A. Dacion en pago creditor/obligee’s benefit.
B. Application of payments It is his right to waive or renounce in accordance with Article 6.
C. Payment by cession
D. Consignation ART. 1236: The creditor is not bound to accept payment or
ART. 1233: A debt shall not be understood to have been paid unless performance by a third person who has no interest in the fulfillment of
the thing or service in which the obligation consists has been the obligation, unless there is a stipulation to the contrary.
completely delivered or rendered as the case may be Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or against the
REQUIREMENT OF INTEGRITY: will of the debtor, he can recover insofar as the payment has been
 Partial performance is no performance, and is tantamount to breach beneficial to the debtor.
 An offer of partial performance may, as a general rule, be refused
by the creditor  Payment may be made by any person, whether he has an interest
EXCEPTION TO THE RULE: in the performance of the obligation or not, and whether the
1. Substantial performance in good faith payment is known and approved by the debtor or whether he is
2. Waiver by creditor/oblige unaware of it.
3. If there are several debts of the same nature and burden, and they  One who makes a payment for the account of another may recover
are all due, the remittance of an amount less than the total of all the from the debtor the amount of the payment, unless it was made
debts will be applied pro nata to them all under the rules on against his express will
application of payments
ART. 1234: If the obligation has been substantially performed in good ART. 1237: Whoever pays on behalf of the debtor without the
faith, the obligor may recover as though there had been a strict and knowledge or against the will of the latter, cannot compel the creditor
complete fulfillment, less damages suffered by the obligee. to subrogate him in his rights, such as those arising from mortgage,
guaranty, or penalty.
I. SUBSTANTIAL PERFORMANCE AS AN EXCEPTION TO  One who pays in the name of the debtor without the knowledge of
INTEGRITY: substantial performance in good faith may the latter, cannot compel the creditor to subrogate him to his rights.
constitute an exception to the rule of integrity
II. ART. 1234 AND 1191 ART. 1238: Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires
the debtor’s consent. But the payment is in any case valid as to the i. If the third person pays with the knowledge and
creditor who has accepted it. consent of the debtor, there will be a subrogation
I. CONSOLIDATED APPLICATION: of the third person in the creditor’s rights, both as
 Art. 1236, 1237, 1238 taken together lay down the rules on to the credit itself and any accessory rights, such
who can pay or perform the obligation. as mortgages and guaranties.
II. WHO CAN PAY/PERFORM THE OBLIGATION: NOTE: the third person-payor himself becomes the
A. Any person- whether or not he had an interest in the creditor, and acquires the right to demand payment
fulfillment of the obligation- could perform the prestation, from the debtor.
and the creditor did not have the right to refuse the EXCEPTION: will not arise if the third person-payor
performance. intended the payment as a donation to the debtor.
i. EXCEPTION: Art. 1161 (Purely personal : the act of payment shall be governed by the law
obligation) on donations
: Strangers cannot validly perform the obligation
unless so stipulated or consented to by the ii. If the third person pays without the knowledge or
creditor consent of the debtor, the third person-payor can
: The creditor should have a right to insist on the recover from the debtor only to the extent that the
liability of the debtor. debtor has been benefitted.
: The creditor should not be compelled to accept
payment from a third person whom he may ART. 1239: In Obligations to give, payment made by one who does not
dislike or distrust. have the free disposal of the thing due and capacity to alienate it shall
B. DISTINCTION: not be valid, without prejudice to the provisions of Article 1427 under
1) The debtor himself may pay as a matter of right, the Title on “Natural Obligations.”
without need of the creditor’s consent. Unjustified
refusal by the creditor will entitle the debtor to PAYMENT BY INCAPACITTED PERSON:
make consignation under Articles 1256 to 1261 1) If the creditor is aware of the debtor’s lack of
right or incapacity to dispose- he accepts the
Who can pay aside to the debtor himself as a thing at his own risk
matter of right: 2) If the creditor is unaware thereof- the debtor
a. The debtor’s agent or legal (or his representative) or the person who has a
representative better right to the property may recover the same
b. His successor-in-interest 3) In either case the debtor (should he
c. Anyone interested in the fulfillment subsequently acquire the right and the capacity to
of the obligation, such as dispose of the property) may ratify or validate the
guarantors. payment previously made.
2) With the creditor’s consent, anyone may pay the
obligation RULE IN CASE OF VOIDABLE CONTRACTS:
 Rules laid down in Article 1398 to 1402 shall apply.
III. EFFECT OF PAYMENT BY A THIRD PERSON: EXCEPTION:
A. even if he has no interest in the obligation- may pay if the  Payment under Article 1427- a variety of natural
creditor is willing to accept the performance. obligations
B. Effect or consequence of payment by a third person as far  Article 1427 is dead-letter, having been effectually
as the debtor is concerned? repealed by RA 6809which set the age of majority at 18.
Art.1240: Payment shall be made to the person in whose favor the 1. THE CREDITOR/OBLIGEE HIMSELF: the normal or ideal recipient
obligation has been constituted, or his successor in interest, or any of payment/performance
person authorized to receive it. PAYMENTS BE MADE TO INCAPACITATED CREDITORS ARE
 Payment must be made to the person in whose favor the obligation ONLY VALID PRO TANTO
is constituted, or to another authorized to receive it in his name a) Only to the extent of what the creditor has kept
b) To the extent that the creditor has been benefitted.
Art. 1241: Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as EXCEPTIONS:
the payment has been beneficial to him 1) The creditor’s transferee or representative
TRANSFEREES: could include successors-in-interest
Payment made to the third person shall also be valid insofar as such as donees, vendees, heirs, devises, legatees,
it has redounded to the benefit of the creditor. Such benefit to the subrogees, or assignees.
creditor need not be proved in the following cases: REPRESENTATIVE: are those who can stand in the place
1) If after the payment, the third person acquires the creditor’s of the creditor and can receive payment on his behalf or in
rights; his stead.
2) If the creditor ratifies the payment to the third person : Representation may be voluntarily created by the creditor
3) If the creditor’s conduct, the debtor has been led to believe himself
that the third person had authority to receive the payment. 2) Anyone in possession of the credit:
 Payment bona fide by the creditor to a person in
 Payment made to a person who is incapacitated for the possession of the credit is a valid payment,
management of his property shall be valid in so far as it may have though the payee may not, objectively speaking,
been beneficial to him. have the rights of creditor.
 A payment made to a third person shall also be valid in so far as it 3) Third persons:
may have been beneficial to the creditor.  Payment made to a third person who is neither a
transferee or a representative of the creditor, may
Art. 1242: Payment made in good faith to any person in possession of produce the effect of payment
the credit shall releases the debtor. THREE CASES WHERE THE ENTIRE AMOUNT PAID
SHOULD BE CREDITED TO THE PAYMENT OF THE
 A payment made in good faith to the person who is in possession of DEBT:
the credit shall release the debtor. 1) If after the payment, the third person acquires the
creditor’s rights
TO WHOM PAYMENT SHOULD BE MADE: 2) If the creditor ratifies the payment to the third person
3) If by the creditor’s conduct the debtor has been led to
GEN RULE: payment should be made to the creditor himself. Therefore, believe that the third person has the authority to
payment to any other person will not be legally deemed to extinguish the receive the payment.
obligation
 In some cases, however, payment to a person other than the Art. 1243: Payment made to the creditor by the debtor after the latter
creditor may produce the effect of payment (either pro tanto or the has been judicially ordered to retain the debt shall not be valid.
full extent of the amount or thing paid.)

RULES:
 GARNISHMENT OF CREDIT: which the debtor has against the Art. 1245: Dation in payment, whereby property is alienated to the
third person effectively freezes such credit. The debtor’s debtor creditor in satisfaction of a debt in money, shall be governed by the law
should hold the payment of the debt in abeyance and await further of sales.
orders of the court.
 Any payment made to the debtor by his debtor DACION EN PAGO: transmission of the ownership of a thing by
after service of the order of garnishment will be the debtor to the creditor as an accepted equivalent of the
ineffective as to the debtor’s creditor. performance of an obligation.
 Might expose the debtor’s debtor exposes himself
: a special mode of payment the debtor offers another thing to the
to the risk of double payment.
creditor who accepts it as the equivalent of payment of an
 Solution indebiti
outstanding debt
Art. 1244: The debtor of a thing cannot compel the creditor to receive a :A special form of payment since it departs from the requisite of
different one, although the latter may be of the same value as, or more identity of prestation
valuable than that which is due
In obligations to do or not to do, an act or forbearance cannot : the obligation is extinguished by the performance of a prestation
be substituted by another act or forbearance against the obligee’s will. that was not originally intended or contemplated by the parties.

REQUISITES OF DACION EN PAGO:

REQUIREMENT OF IDENTITY: by identity is meant that the very
prestation must be performed. 1. The performance of another prestation in lieu of payment
which may consist in the delivery of a corporeal thing or a
APPLICATION OF ARTICLE: applies to specific obligations (to real right or a credit against a third person
give or to do); Generic obligations are governed by Art. 1246 2. There must be some difference between the prestation
due and that which is given in substitution.
CATHAY PACIFIC V. SPS. VAZQUEZ 3. There must be an agreement between the creditor and the
CONTRACT: is a meeting of minds between two persons whereby one debtor that the obligation is immediately extinguished by
agrees to give something or render some service to another for a reason of the performance of a prestation
consideration
NATURE OF DACION EN PAGO:
REQUISITES:
1. Consent of the contracting parties a. SALE: a transaction most resembling a sale
2. An object certain which is the subject of the contract  delivering a non-pecuniary thing in lieu
3. The cause of the obligation which is established. of payment of a money debt, the debtor
BREACH OF CONTRACT: failure without legal reason to comply assumes a role closely akin to that of a
with the terms of a contract vendor and the creditor in effect
becomes a vendee.
: failure without legal excuse, to perform any promise which  E.g a sale emerges very clearly in a
forms the whole or part of the contract transaction originating as a contract of
loan.
b. NOVATION: one that involves a change of object
EXCEPTION TO THE RULE OF IDENTITY:
1. Dacion en pago (Art. 1245)
CRITICISM OF BOTH THEORIES:
2. Novation (Art. 1291-1304)
 1. Not precisely a sale because when the
parties entered into the agreement, the
contract was mutuum. There was really
never an intention to enter intention to
enter into a sale
2. Neither it is a novation becausethere is
really no replacement of one obligation
with another. The modified form of
payment immediately and directly
extinguishes the obligation instead of
creating in its place.
c. A THIRD THEORY: Dacion en pago is a species
or variation of payment implying an onerous
transaction akin to a sale
REQUIREMENT OF CONSENT:
 Requires both the consent of both
parties

OTHER THAN MONEY DEBTS: it could be considered

akin to a barter, which by the provisions of Art. 1641, is
governed by the provisions of Sales as to such matter as
warranties.

EXTENT OF EXTINGUISHMENT: primarily depends on

the agreement of the parties.

: it can be total or partial.

: the obligation is extinguished to the extent of the value of

the thing delivered unless the parties, by agreement,
express or implied, consider the thing as equivalent to the
obligation, in which case, the obligation is totally
extinguished.