OBLIGATIONS

AND
CONTRACTS
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ARTS 1232-1242

Submitted by: Britney Española

Art. 1232
Payment means not only the delivery of
money but also the performance, In any other
manner, of an obligation.
(1) ‘Payment’ defined

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- It is the mode of extinguishing obligation that consist not
only in delivery of money but also the giving of a thing, the
doing of an act, or not doing of an act.

Example: the debtor pays damages or penalty in lieu of

obligation
 General Rule: partial or irregular performance will not extinguish obligation
Art. 1233
A debt should not be understood to have been
paid unless the thing or service in which the
obligation consists has been completely delivered or
rendered, as the case may be.
TWO REQUISITES OF PAYMENT:
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(1) Integrity of Prestation- a debt to deliver a thing or render service is not
considered as paid unless the thing or service has been completely delivered
or rendered.

Example: Mikasa obliged himself to deliver 100 sacks of rice to Armin.

Mikasa delivered only 90 sacks.
➢ Under the law, there is no payment by Mikasa, and Armin can refuse
to pay for the 90 sacks if Mikasa does not deliver what is lacking.
(2) Identity of Prestation- This second requisite means that the
very prestation must be delivered or performed.

Burden of Proof:
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(a) An alleged creditor has burden of showing that a valid debt
exists.
(b) Once he does this, the debtor has the burden to prove that
he has paid the same.

Debt is an obligation to deliver money,

deliver thing, to do an act, not to do an act
 Exception to Art. 1233
Art. 1234
If the obligation has been substantially
performed in good faith, the obligor may recover as
though there has been strict and complete
fulfillment, less damages suffered by the obligee.
Explanation: The obligor is allowed to recover in case of

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substantial performance made in good faith. This last condition

affords just compensation for the relative breach committed by
the obligor.
Substantial performance is when the essential part has been
performed and only a minor part thereof has not been carried out

REQUISITES:
(1) There must be substantial performance
✓ Contract is subject to rescission or cancellation
(2) Obligor must be in good faith
✓ Allows proportionate reduction in the amount recoverable by obligor

When is Art 1234 applicable?

When obligor admits breaching the contract after honestly and
faithfully performing all the material elements except for some technical
aspects that cause no serious harm to the obligee.

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Example: Eren obliged himself to deliver 500 bags of cement to Levi.

However, despite diligent efforts on his part, Eren was able to deliver
only 400 bags because of shortage.
➢ Under Art 1234, Eren can recover as though there had been complete
delivery less the price of 100 bags. Eren must prove that he attempted
in good faith to comply with his obligation.
 Art. 1235
When the obligee accepts the performance,
knowing its incompleteness or irregularity, and
without expressing any protest or objection, the
obligation is deemed fully complied with.
Explanation: Recovery allowed when incomplete or irregular

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performance is waived (principle of estoppel)
Estoppel is a legal principle that prevents someone from
arguing something or asserting a right that contradicts what
REQUISITES: they previously said or agreed to by law.

(1) Obligee knows the performance is incomplete or irregular

(2) He accepts performance without objection
Example: Akatsuki agreed to paint the house of Hitachi. According to their stipulation,
Akatsuki will use Kansai paint. If Hitachi accepted the performance of Akatsuki,
knowing that he used another brand and without objection, the obligation is fully
complied with.
 Art. 1236
The creditor is not bound to accept payment or
performance by a third person who has no interest in
the fulfillment of obligation, unless there is a
stipulation to the contrary.

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Whoever pays for another may demand from the

debtor what he has paid, except that if he paid
without the knowledge or against the will of debtor,
he can recover only insofar as the payment has been
beneficial to the debtor.
Persons from whom creditor must accept payment:
(1) debtor
(2) any person who has interest in the obligation (like a guarantor)
(3) third person who has no interest in the obligation when there is
stipulation allowing him to make payment

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“Under old Civil Code, creditor cannot refuse payment by a third

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person but the Commission believes that the creditor has the
right to insist liability of debtor”
• Creditor should not be compelled to accept payment from third person
whom he may dislike or distrust
• Creditor may not, for personal reasons, desire to have business dealings
with a third person
• Creditor may not have confidence in the honesty of the third person
Effect of payment by a third person
(1) if made without knowledge or against the will of debtor
✓ payer cam recover from debtor only up to the amount of debt at
the time of payment (beneficial reimbursement)

(2) if made with the knowledge of debtor

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✓ payer shall have rights of reimbursement and subrogation to

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such rights such as guaranty, penal clause, or mortgage

Example: Kakashi owes Sasuke P1,000,000. Later, Kakashi paid

Sasuke P700,000, leaving a balance of P300,000. Hinata, a
classmate of Kakashi who intends to surprise him paid Sasuke the
sum of P1,000,000 thinking Kakashi still owes Sasuke that
amount. Hinata did this without the knowledge of Kakashi. How
much can Hinata recover from Kakashi?
➢ Hinata can recover P300,000 because it is only up to this amount
that Kakashi was benefited. Hinata can recover remaining
P700,000 from Sasuke who should not have accepted complete
payment for a debt partially paid. If Sasuke was in bad faith, he is
responsible not only for the return of P700,000 but also for
interest in lieu of damages.

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➢Suppose in the preceeding example, the payment of Hinata was

made against the will of Kakashi, would the answer be the same?

ANS: Yes, the law makes no distinction as to the right of recovery in

case payment by a stranger was made either without the knowledge
or against the will of debtor. In both cases, the paying stranger “can
recover only insofar as the payment has been beneficial to the
debtor”
 Note: subrogation can only take place with debtor’s consent
Art. 1237
Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot
compel the creditor to subrogate him in his rights, such
as those arising from a mortgage, guaranty, or penalty.

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• If payment is with express of implied consent of debtor
= entitled to full reimbursement and subrogation

• If payment is without knowledge or against the will of debtor

= third person cannot compel debtor to subrogate him but
he has the right for beneficial reimbursement
 SUBROGATION REIMBURSEMENT
-person who pays for - Third person entitled by
debtor is put in shoes of reason of payment has
creditor merely bare right to be
-acquires right to reimburse refunded without right to
and all other rights which the guarantees and
the creditor could have securities 0f original
exercised obligation

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- only change of creditor

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Example: Tenten borrown P1 million from Gaara. The loan was
secured by a mortgage os Tenten’s land in favor of Gaara. Without
the knowledge of Tenten, Chouji paid Gaara the sum of P1 million
for Tenten’s debt. Tenten benefited to the amount of P 1 million.
1) May Chouji claim reimbursement from Tenten? If so, how
much?
ANS: Yes, Chouji can recover the whole amount of P1 million
inasmuch as Tenten was benefited up to that amount.

2) If Tenten cannot pay, may Chouji foreclose the mortgage on

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Tenten’s land?

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ANS: If Tenten cannot pay, Chouji cannot foreclose the
mortgage on Tenten’s land. It is true that the original
creditor Gaara has the right to foreclose in case of non
payment, but, in this case, the new creditor Chouji had not
been subrogated in the rights of Gaara, inasmuch as Chouji
paid without the knowledge of Tenten. The only right of C
therefore is reimbursement up to the amount that A was
benefited but not the right of subrogation.
Art. 1238
Payment made by a third person who does noti
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 creditor who
has accepted it.

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Payment is deemed to be donation which requires
debtor’s consent
Reason: No one should be compelled to accept the
generosity of another ARTS 1232-1242
Exception: if the creditor accepted the payment, it shall
be valid to him even without debtor’s consent.
Example: Sakura owes Tsunade P10,000. Without
intention of being reimbursed, Neji paid Sakura’s
obligation. Sakura had previously accepted Neji’s
generosity.

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➢ Sakura is not liable to Neji (obligation extinguished)
➢ If Sakura did not consent, Neji may recover from
Sakura because there is no donation
➢ Obligation of Sakura to TsunadeARTS 1232-1242
is extinguished
because Tsunade accepted the payment
 General rule: payment by one who does not have free disposition of thing due and
Art. 1239 capacity to alienate it is not valid. This means that the thing paid can be recovered.

In obligations to give, payment made by one who

does not have the free disposal of the thing due and
capacity to alienate it shall not be valid, without
prejudice to the provisions of Article 1427 under the
Title on “Natural Obligations.”

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(1) Free disposal of the thing due- the thing to be delivered must
not be subject to any claim or lien or encumbrance (e,g.,
mortgage, pledge) of a third person.

(2) Capacity to alienate - person is NOT incapacitated to enter

into contracts
Example: Fuji agreed to sell to Ryoma tv set. If the tv set delivered to Ryoma
belongs to Tezuka, the same can be recovered by Tezuka because Fuji does not
have free disposal of the tv set. The same rights of recovery exists although the
tv set belongs to Fuji if he is a minor, therefore, has no capacity to alienate it.

Exception: Art 1427- “When a minor between and 21 years old, who has
entered into a contract without the consent of the parents or guardian
voluntarily pays a sum of money or deliver a fungible thing in fulfillment of

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obligation, there shall be no right to recover from creditor who has consumed it

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in good faith.”

Example: Boruto, a minor, entered into a contract without consent of his

parents. In the contract Boruto will pay Taguro 1 million pesos. Taguro did not
know Boruto was a minor. Boruto voluntarily give the money and Tsguro
accepted it. Out of this amount, B spent P800,000.
➢ Later, the parents of minor brought an action to recover 1 million paid to
Taguro. In here, the parents can only recover P200,000 because P800,000
was spent in good faith.
Art. 1240
Payment shall be made to the person in whose
favor the obligation has been constituted, or his
successor in interest, or any person authorized to
receive it.
Payment must be made to
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(!) creditor (time of payment)
(2) successor in interest (heirs/assignee)
(3) any person authorized to receive it (by agreement or law)

Exception: payment in good faith to any person in possession

of the credit is valid although such person may not be
authorized to receive the payment
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 the payment has been
beneficial to him.
Payment made to a third person shall also be valid
insofar as it redounded to the benefit of the creditor. Such

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benefit to the creditor need not be proved in the following

cases:
(1) if after the payment, the third person acquires the
creditor’s rights;
(2) if the creditor ratifies the payment to the third person;
(3) if by the creditor’s conduct, the debtor has been led to
believe that the third person had authority to receive the
payment.
(1) 1st paragraph- Payment to an incapacitated
person
(a) payment to incapacitated person is only valid:
1) if incapacitated person kept the thing delivered
2) if incapacitated person benefited by the payment

(b) Ichigo owes Tamahome P1,000,000. When Ichigo

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paid Tamahome, the latter was already insane. The
money was never spent and it was still in the
possession of Tamahome. Is Ichigo’s obligation
extinguished?

ANS: Ichigo’s obligation is extinguished. Although he was

incapacitated, he kept the thing delivered. Hence, Ichigo’s
payment is valid.
 (c) In question (b), suppose a scammer asked
Tamahome 1 million in exchange for a ring worth
P500,000, does Ichigo’s payment to Tamahome
remain valid?

ANS: Ichigo’s payment is valid only up to the extent of

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P500,000 because this is only insofar as the payment has

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benefited the incapacitated payee.

(d) Who has the burden of proving that the payment

has benefited the incapacitated payee?

ANS: the one who made the payment has the burden to
prove that the incapacitated payee benefited.
 (e) In proving that incapacitated person benefited
from the payment, is it necessary for the payor to
prove that the payee invested the thing or money
delivered in some profitable enterprise?

ANS: No, proof of investment is not necessary. All that is

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needed is proof that payment to the incapacitated payee has

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in some way or another redounded to the benefit of the
payee.

(f) A good example of beneficial payment to an

incapacitated person is when the money has been
used for hospital or psychiatric expenses
 (g) If there is no benefit, what remedy is given?
ANS: payment is not valid. The legal representative of incapacitated
person can demand new payment on behalf of his ward

(2) 2nd paragraph- payment to unauthorized person

when benefit to the creditor is presumed:
1) Subrogation of the payer in the creditor’s rights

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Example: An impostor-agent after payment to him becomes owner of
company-creditor.
2) Ratification of creditor
Example: If the Meralco, a few days after the unauthorized collector had
collected from you, tells you that the payment to him is all right. Here, the
defect is cured.
(3) If by creditor’s conduct, the debtor has been led to make
the payment.