OBLIGATIONS AND CONTRACTS Payment GQ 2.

Section 1 – Payment
1. What does payment include in the legal sense?
- According to article 1232. Payment means not only the delivery of the money but also the
performance, in any other manner, of an obligation.
- In ordinary parlance, payment refers only to the delivery of money. As a legal mode of
extinguishing an obligation, payment may consist of not only in the delivery of money but also
the giving of a thing, the doing of an act, or not doing of an act.
2. When is a debt considered to be paid?
- A debt can be considered to be paid if the obligation has been completely delivered or rendered.
According to article 1233. A debt shall 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.
3. If the obligation has been substantially performed in good faith but which the obligor could not
comply with his obligation due to reasons outside of his control, what is the remedy of the debtor?
- According to article 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfilment, less damages
suffered by the obligee.
- In case of substantial performance, the obligee is benefited. So the obligor should be allowed to
recover as if there had been a strict and complete fulfilment less damages suffered by the oblige.
This last condition affords a just compensation for the relative breach committed by the obligor.
4. X contracted the to the shop of Y to paint her car red. However, when X went back to the shop, it
was instead painted maroon. Despite seeing the car, colored maroon, X happily paid the shop and
claimed the car without protest. If after 3 days X realized she did not like maroon, can she claim
from Y damages for contravention of tenor of their obligation?
- According to article 1235. When the obligee accepts the performance, knowing tis incompleteness
or irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.
- X cannot claim from Y, it is a No. therefore, the obligation is deemed fully complied but X can
recover if X waives his right.
5. Who are the persons from whom the creditor is bound to accept payment?
- The creditor is bound to accept payment or performance from the following:
(1) The debtor;
(2) Any persons who has interest in the obligation when there is stipulation that he can make
payment.
(3) A third person who has no interest in the obligation when there is stipulation that he can
make payment.
6. If a random third person pays the creditor, can the creditor accept such payment?
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- According to article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the
contrary.
- The creditor can accept such payment by the third person if he feels trusted and can also refuse to
accept such payment when he thinks that the third person whom he may dislikes or distrust.
7. What do you mean by “a third person who has interest in the fulfillment of the obligation?”
- Referred to those persons that are related to the principal obligations
8. What is the effect if the creditor accepts payment of a third person without the knowledge of the
debtor?
- The payer can recover from the debtor only insofar as the payment has been beneficial to the latter.
The recovery is only up to the extent or amount of the debt at the time of payment.
9. What is the effect if the creditor accepts payment of a third person with the knowledge of the debtor?
- The payer shall have the rights of reimbursement and subrogation, that is, to recover what he has
paid and to acquire all the rights of the creditor.
Note: Subrogation is discussed in the next article.
10. Explain the concept of subrogation.
- Subrogation means whoever based on behalf of the debtor is entitled to subrogation if the payment
is with the consent of the latter if the payment is without the knowledge or against the will of a
debtor the third person cannot compel the creditor to segregate him in the latter's access to the
rights of mortgage guarantee or penalty.
11. Distinguish subrogation and reimbursement.
- Subrogation means the person who pays for the debtor is put into the shoes of the creditor while
reimbursement means the third person entitled by reason of payment has merely and bear right
to be refunded to the extent provided in the second paragraph of article 1236 without the right to
the guarantees and securities of the obligation.
12. What is the effect if a third person pays the creditor who does not intend to be reimbursed?
- According to article 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 creditor who has accepted it.
a. To the debtor?
 It is deemed to be a donation which requires the debtor’s consent.
b. To the creditor?
 If debtor will not accept as a donation, debtor can ask for reimbursement.
13. Distinguish “Free disposal of the thing due” and “Capacity to alienate.”
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- As a general rule in obligations to give payment by one who does not have the free
disposition of the thing due and capacity to alienate it is not valid this means that the thing
paid can be recovered.
14. Is a payment by one who does not have free disposal of the thing due and does not have the capacity
to alienate a valid payment?
- According to article 1239. 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.” Therefore, it is invalid.
15. To whom can a payment be validly made?
- According to article 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.
- The payment shall be made to the creditor or oblige, his successor in interest, or any person
authorized to receive it.
16. What do you mean by “any person authorized to receive” the payment?
- It means that any person who’s being authorized by the debtor to receive the payment.
17. X is indebted to Y worth 1,000 pesos. However, sometime later, Y became mentally incapable to
administer his property because of his old age, serious mental difficulties. Not knowing this, X paid
Y his debt.
a. Is the payment of X to Y a valid payment?
- According to Article 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. Therefore it is valid only insofar as Y is benefited.
b. What if in this case after receiving the amount, bought some medicines for his medications of
the brain worth 600 pesos, is there a valid payment by X?
- There is only a valid payment of X is 600, X will still liable for 400 pesos.
18. What is the effect of a payment to a third person by the debtor?
- Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the
creditor.
19. Since payment to a third person that is valid so far as it has benefited the creditor, does this benefit
need to be proven as a general rule? What are the instances when this benefit need not be proven?
- That the creditor was benefited by the payment made by the debtor to a third person is not
presumed and must therefore be satisfactorily established by the person interested in providing
this fact.
20. What is the effect of payment made in good faith to any person in possession of the credit of the
creditor?
- According to article 1242 payment made in good faith to any person in possession of the credit
shall release the debtors.
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21. X is indebted to Y a specific car. However, there was a court order that X cannot validly dispose the
car. Despite such order, X secretly paid Y his debt so that he will not have any burden anymore for
his debt. Is X payment a valid payment?
- According to article 1243. Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid. Therefore, X payment is not a valid
payment.
22. What is Dation in payment? What is the governing law of dation in payment?
- According to article 1245 dation in payment whereby property is alienated to the creditor in
satisfaction of a dead in money shall be governed by the law of sales. Therefore, Dation is a
special kind of payment.
23. X is indebted to Y a young regular sized horse. Can Y demand a regular sized race horse? Can X
deliver a horse that looks young but is in fact old?
- According to article 1246. When the obligation consists in the delivery of an indeterminate thing
or generic thing, whose quality and circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into consideration. Therefore, Y
cannot demand a thing that is superior or inferior quality of the race horse.
24. X is indebted to Y a young regular sized horse. In delivering the horse, he incurred cost such as
renting a truck to deliver the horse. Who is legally burdened by such extrajudicial costs absent
stipulation by the parties?
- . The legally burden by such extrajudicial cause absence definition by the parties is x X because
he is in debited to Y a young regular size horse yet he incurred the cost of renting a truck to
deliver the horse and to extinguish his debt.
25. What if in the case of no. 24, X instead did not pay and forced Y to sue him on court? Who bears
such judicial expenses?
- X will bear the judicial expenses because he is the debtor.
26. A is indebted to B ₱10,000 on a certain date. On due date, A did not have enough money. Can A
compel B to receive ₱5,000 in the meantime?
- No, A cannot compel to receive the partial payment even though you don’t have money, because
according to Article 1248. Unless there is an express stipulation to that effect, the creditor cannot
compelled partially to receive the prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
27. A is indebted to B ₱10,000 on a certain date. On Due date, B has so many things to do and he does
not want to hold a big amount of money at that time. B told A that he wants ₱500 in the meantime.
Can B compel A to pay him only ₱500 since it is for the benefit of A?
- Even if it can benefit A, B cannot compel A to pay him 500 only because they have a deal which B
will pay on a certain but still a No, they cannot compel on both sides.
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28. B is indebted to A on an uncertain amount because B damaged A’s car before. They are waiting for
the billing of the Car shop for its repair. Sometime later, the car was not yet fully fixed but the shop
told B that some parts that were bought costs ₱5,000 but additional costs may be added due to the
remaining damaged portion yet to be fixed. Can B pay partially the liquidated amount of ₱5,000 in
the meantime without waiting for the total amount of the billing of the shop?
- Yes, because the shop are still repairing the car and there’s still no fix amount of the total billing of
the shop.
29. What are the instances when partial payment is allowed?
- There are cases however when partial performance may be either required or in system among
these cases are when there is an express stipulation to that effect. When the debt is in part
liquidated definitely in the terminal computed and in part unliquidated and when the different
priest stations in which the obligation consists are subject to different terms are condition which
affect some of them.
30. Define Legal tender.
- Is that currency which if offered by the debtor in the right amount, the creditor must accept in
payment of a debt in money.
31. What is the legal tender in the Philippines?
- Legal tender in the Philippines which debt in money shall be paid in the currency stipulated.
32. X paid the Y on June with a check. Y accepted the check on the same date and encashed the check
on July.
a. Can Y refuse the payment in the first place?
- Yes, since check is not legal tender in the Philippines. Because according to article 1249. The
payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.
b. In the case, when did the payment take effect?
- If somehow accepted, the payment will not take effect in June but in July will take effect.
33. Define (a) inflation (b) deflation.
- Inflation is a sharp sudden increase of money or credit or both without a corresponding
increase in business transactions. While on the other hand, Deflation is the reduction in
volume and circulation of the available money or credit, resulting in a decline of the general
price level; it is the opposite of inflation.
34. Where should payment be made?
- According to article 1251. Payment shall be made in the place designated in the obligation.
35. X went to Y’s house and obliged himself to his friend to deliver Y his only car situated in his garage.
This is in payment of X’s utang na loob to Y On due date where shall payment be made by X?
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- According to article 1251. There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be at the moment the
obligation was constituted. Therefore, X payment shall be made on his garage.
36. X went to Y’s house and obliged himself to his friend to deliver Y a car. This is in payment of X’s
utang na loob to Y. On due date where shall payment be made by X?
- The payment by X shall be made on his house.
37. X went to Y’s house and obliged himself to his friend to deliver Y a car. This is in payment of X’s
“utang na loob” to Y. However, X realized that he obliged himself too much on his “utang na loob”
and does not want to pay the obligation anymore and lived in another city to avoid payment to Y.
Upon knowing that X does not live anymore in his house, Y incurred expenses in hiring a private
investigator to search for X to claim his money. In the eyes of the law, what is the obligation of X to
Y?
- According to article 1251. If the debtor changes his domicile in bad faith or after he has incurred in
delay, the additional expenses shall be borne by him. Therefore, the obligation of X to Y is to
pay the incurred expenses made by Y in hiring a private investigator.
38. What are the special forms of payment?
- The application of payment as to debts not yet due cannot be made unless there is a
stipulation that the debtor may so apply or it is made by the debtor or creditor as the case
may be for whose benefit the period has been constituted.

Subsection 1 Application of Payment

1. Define 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.
2. What are the requisites of application of payments?
- The requisites are:
(1) There must be one (1) debtor and one (1) creditor;
(2) There must be two (2) or more debts;
(3) The debts must be of the same kind;
(4) The
3. What are the instances when application of payment is allowed even when as to debts that are not
due?
- It depends on the benefit of the parties, just like for the benefit for the debtor the debtor can pay
earlier than the due date but the creditor can’t collect the payment early in this case it is even it is
not due since the debtor has the benefit of the period he can pay early than the due date.
4. What are the rules on application of payments?
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(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. 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
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 the debt, which is
most onerous to the debtor among those due, shall be deemed to have been satisfied
5) If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately.
6) If neither party has exercised its option and there is disagreement as to debts to which payment
must be applied, the court will apply the payment according to the justice and equity of the case.
5. In application of payments, if debts produce interest, can interest be applied before application to the
principal? Can your first answer be otherwise if it is subject to stipulation or is this purely
mandatory?
- It is purely mandatory since interest should be the first to be paid according to ART. 1253. If the
debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered
6. What do you mean by application of payment to the more onerous debt in case there is no
designation of the debtor and the creditor of which debts shall be applied?
- ART. 1254. When the payment cannot be applied in accordance with the preceding rules, or if
application cannot be inferred from other circumstances, the debt which is most onerous to the
debtor, among those due, 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.
- (1) An interest-bearing debt is more onerous than a non-interest bearing debt even if the latter is an
older one.
- (2) A debt as a sole debtor is more onerous than as a solidary debtor. Accordingly, where in a bond
the debtor and surety have bound themselves solitarily, but limiting the liability of the surety to a
lesser amount than that due from the principal debtor, any such payment as the latter may have
made on account of such obligation must be applied first to the unsecured portion of the debt,
for, as regards the principal debtor, the obligation is more onerous as to the amount not secured.
- 3) Debts secured by a mortgage or by pledge are more onerous than unsecured debts
- 4) Of two interest-bearing debts, the one with a higher rate is more onerous.
- 5) An obligation with a penalty clause is more burdensome than one without penalty clause
7. X owes Y the following debts:
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a. ₱200,000
b. ₱100,000 with a mortgage
c. ₱100,000 with an interest of 12%
d. ₱50,000 with an interest of 6%
e. ₱20,000 with an interest of 12%
However, X does not have enough money, to pay all or even one of the debts, to which debt should
he first apply?
- Any of the chosen choice of the debtor that he would apply
8. Refer to Number 7. How about when he just paid the amount without designating the debt. To whom
must the creditor apply his payment?
- Whatever the choice of the creditor
9. Refer to Number 7. How about when the debtor and creditor did not designate to which payment
must be applied? To which debt shall payment be applied?
- He should choose the more onerous in this case the more onerous is letter B, C, and E
10. Refer to Number 7. In the correct order, arrange the following debts to as to which debt will be first
applied against the other debts.
- First one to be applied is B C, and E then last will be applied is D and A