Case 1: A was indebted to B, who was insane at the time of the payment, at the amount of P1,000.

B bought
something that was supposed to be free for P1,000. B’s guardian tried to claim from A the debt due. A contented
that his obligation was already extinguished by the payment he tendered and made to B.

Question 1: Is the payment made by a to B, a person who is incapacitated person, valid?

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.

Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such
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. (1163a)

First paragraph of Article 1241:

Two instances in which the payment can be valid:

(1) If the incapacitated person to whom the payment was made has kept the thing delivered; or
(2) Insofar as the payment has been beneficial to him. (In the second instance, the validity of the payment extends
only insofar as it redounded to the payee’s benefit).

Question 2:
What if B, during his insanity and during his keeping and possession of the P1,000, was defrauded into buying a
pair of shoes which was actually P500?

Question 3:
In case B argued that the shoes bought was not beneficial to him, should he bear the burden of proof?

Second paragraph of Article 1241:

Payment to unauthorized or third person is valid only up to the extent of benefit that redounded to the benefit of the
creditor. But the debtor has the burden of proof to prove that the payment has redounded to the benefit of the creditor,
except 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.) If after the payment, the third person acquires the creditor’s rights

Example:
A owes B. However, B decides to transfer his rights to C. A, unaware of this transfer, makes a payment to B.
Subsequently, B informs A about the transfer of rights to C. In this case, A's payment to B is still valid because C has
acquired the rights of the original creditor, B.

2.) If the creditor ratifies the payment to the third person;

Example:
A owes B. Without B’s authorization, his friend, C, collects the payment from A on his behalf. Later, B learns about this
and, instead of rejecting the payment, he approves and accepts it. In this scenario, B's ratification of the payment made by
A to C validates the transaction.

3.) If by the creditor’s conduct, the debtor has been led to believe that the third person had authority to receive the
payment.

Example:
A, a debtor, receives a letter from his creditor, B, stating that her colleague, C, is authorized to collect payments on her
behalf. Relying on this information, A makes a payment to C. If B later claims that C had no authority, A may be
considered to have fulfilled his obligation because B's conduct led him to believe that C had the authority to receive
payments.

Article 1242

Payment made in good faith to any person in possession of the credit shall release the debtor.

Case Illustration

Panganiban vs Cuevas 7 Phil 477 (1907)

Ponente: C.J. Arellano

Facts:
Panganiban is the owner of a parcel of land. He sold the land to Gonzales with a right to repurchase. During the war,
Panganiban failed to find Gonzales, and the land was attached by the revolutionary government. Since Panganiban has a
right to repurchase, he paid the repurchase price to the revolutionary government in good faith. It turned out however that
Gonzales sold the land to Cuevas. Panganiban brought an action to recover the land from Cuevas.

Issue: Whether or not Panganiban has the right to recover the land from Cuevas, given that he already paid the repurchase
price to the revolutionary government.

Held:
No. Article 1164 (in the New Civil Code it is Article 1242) cannot be used in this case because the payment to the
revolutionary government was an invalid payment. The government merely attached the property which attachment
merely prohibited its alienation. In simpler terms, the government took action to seize the property but did not take
ownership of it outright. Instead, they prevented the property from being sold or transferred to anyone else until the legal
matter related to the property was resolved. For the provision to be considered in this case, the revolutionary government
must be in the possession of the credit. However, it was not.

The remedy of Panganiban is to redeem the property from Cuevas by paying him the repurchase price.

Paragraph 2 of article 1163 (Article 1241 in the New Civil Code) is also not applicable to this case, because their is
nothing in the record to show that a payment made by Panganiban to the revolutionary government was for the benefit of
Gonzalez. “That the creditor was benefited by the payment made to a third person by his debtor can not be presumed, and
must, therefore, be satisfactorily established by the person interested in proving this fact.” Manresa, 8 Civil Code, 257.)

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.

Example:
A owes a significant sum of money to a bank, and there's a legal dispute regarding the debt. The court issues
an order for A to retain the debt until the legal matter is resolved. Despite this court order, A makes a payment
of PhP10,000 to the bank. Since the court had already ordered A to retain the debt, this payment of PhP10,000
is considered invalid under Article 1243 of the Civil Code. The bank cannot legally accept or enforce this
payment because it violates the court's order. A may need to comply with the court's instructions and retain the
debt until the legal matter is resolved.

Another Example:
Garnishment- The proceeding by which a debtor’s creditor is subjected to the payment of his own debt to
another.

A owes B PhP10,000. B, in turn, owes C PhP10,000.00. C brings an action against B, who claims insolvency but
admits the credit which he has over A. Before A pays B, A is summoned into the proceeding, and asked to
retain the debt in the meantime. Thus, the debt is “garnished”. The reason is A should not pay B, and instead
pay C, should C really be adjudged the creditor of B.

ARTICLE 1244
The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value
as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the
obligee’s will. (1166a)

Article 1245
Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by
the law of sales. (n)

Kindly insert this paragraph under Article 1245: The law of sales governs because dation in payment
may be considered a specie of sale in which the amount of the money debt becomes the price of the
thing alienated.

Article 1246
When the obligation consists in the delivery of an indeterminate 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. (1167a)