Section 1. Payment or Performance 

Payment

• In ordinary parlance, payment refers only to the delivery of money.

• As a legal mode of extinguishing an obligation, it has a much wider meaning. Payment may consist 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. 

When  a debtor pays damages or penalty in lieu of the fulfillment of an obligation, there is also payment in the sense used in Article 1232.

Note: In law, payment and (specific) performance are synonymous. 

When debt is considered paid.

A receipt that is presented is a reliable proof of payment.  Therefore, after making a payment on a debt, a debtor may ask the creditor for the issuing of a receipt.  If the creditor declines to provide a receipt, the debtor may request consignment.  After the creditor has established the debt's existence, it is the debtor's responsibility to prove payment.

A debt may refer to an obligation to deliver money, to deliver a thing, to do an act, or not to do an act.

Requisites:

• Integrity of prestation 

A debt to deliver things or to render service is not considered to have been paid until the thing or the services, as the case may be, have been fully delivered or rendered. Generally speaking, partial or inconsistent performance will not result in the termination of an obligation. 

Example: 

Lala obliged herself to deliver 20 dresses to Lili. On the date of the delivery Lala delivered only 18 dresses. 

According to the law, Lala is not required to make any payment, and Lili can refuse to pay for the 18 dresses if Lala does not deliver what is lacking.

• Identity of the presentation

This second requisite means that every prestation due must be delivered or performed. 

RULE: Generally, debt is not considered paid until the object or service that constitutes the obligation has been entirely delivered or performed. (Art. 1233)

EXCEPTION: Substantial performance of an obligation in good faith. 

REQUISITE: "Substantial performance" shall apply only when an obligor has admitted to breaching the contract after having attempted to completely fulfill the obligation faithfully and honestly. The same shall not pertain to a party who willfully fails or omits to perform a material part of his obligation.

REMEDY: The obligation may be treated as if there were complete performance, with the creditor having a right to damages, or, at the discretion of the court, the person in default may be provided with a period of time within which the obligation can be satisfied.

Example

Regina obliged herself to deliver to Edison 50 barrels of crude oil. However, despite Regina's diligent efforts to deliver them all, she was able to deliver only 37 barrels due to an oil shortage. In this scenario, the obligation may be deemed completely fulfilled, with damages available for Edison’s claim or Regina, at the court’s decision, may be given time to deliver the remaining object and fulfill her obligation should the oil be available again. 

RULE: Generally, debt is not considered paid until the object or service that constitutes the obligation has been entirely delivered or performed. (Art. 1233)

EXCEPTION: Creditor’s acceptance of an incomplete performance without protest.

REQUISITES: 

• For Application

• The obligee is knowledgeable of the incomplete/irregular performance; and 

• He intentionally accepts the performance with no objection

• For form of protest

  1. 1. • No particular manner or particular time is required by Article 1235 to qualify as a form of ‘protest’ or ‘objection’. So long as the obligee expresses dissatisfaction to the said payment or performance, then the obligation is still in effect.

REMEDY: The obligation is extinguished the moment the creditor has agreed to receive the irregular/incomplete performance and any rights to demand its fulfillment in the future has been waived off. 

Example

 Jaz obliged herself to deliver to Jeremy 200 boxes of face masks on November 29. On the said date, Jaz delivered to Jeremy only 177 boxes of face masks and Jeremy did not object. In this case, the obligation is considered complied with because Jeremy, knowing the incompleteness of the delivery, accepted the performance with no complaints. 

RULE: The obligee has the right to refuse payment or performance by a third person.

EXCEPTIONS:  

Payment/performance is bound to be accept by the creditor

• If it is from the debtor;

• If there is stipulation allowing the payment of the third person; or

• If the said person has an interest in the fulfillment of the obligation (ex. guarantor, mortgager, and etc.)

• REQUISITES:  Article 1236 acknowledges that payment may be made by any person who is not incapacitated and has no interest in the obligation, even without the knowledge of the debtor, provided that the obligee agrees to receive it.  

REMEDIES: 

• • If payment or performance is made by a third person upon debtor's opposition or WITHOUT his knowledge, the obligation is extinguished. Subsequently, the payer may recover, from the debtor, to the extent of what has benefitted the latter. However, he (third person) is not subrogated to the rights of the creditor.

  • If payment or performance is made by a third person WITH the debtor’s knowledge or consent, the obligation is extinguished. Subsequently, the payer is entitled to reimbursement of the amount settled and subrogation of the creditor’s rights.

CASE ILLUSTRATION:

Mitsui Bussan Kaisha v. Meralco

39 Phil. 624

FACTS: A seller in Japan, plaintiff, sold some coal to the defendant, a buyer. While in process of delivery, a specific tax of P1.00 per metric ton of coal was imposed by the Philippine Legislature. The plaintiff, then, paid this tax so that the coal could enter Manila. When the defendant was asked for reimbursement, the defendant refused to pay. Consequently, plaintiff brought this action.

Issues:

1. Who should really shoulder the tax?

2) Should the buyer really be the person to pay the tax, may the seller recover from the buyer what has been paid for the taxes, even though said payment was effected without the consent of the buyer?

Ruling:

1. The buyer (defendant) should really pay the tax. Although the Act provides that the seller may pay the tax, as is customary under our revenue system, still the burden of paying should fall upon the ultimate consumer.

2. Since the seller only paid on behalf of the buyer, the seller can now recover the tax paid from the buyer, despite the fact that the buyer’s agreement or consent was not acquired beforehand.  In this case, what can be recovered is the amount that has benefited the buyer, which is the whole tax.

DEFINITION: Subrogation occurs when a third person obtains the legal rights of a creditor. 

RULE: A third person who pays on behalf of the debtor is only entitled to subrogation if the latter consents to the payment. As stated in Art. 1302 of the Civil Code, "It is presumed that there is legal subrogation xxx (2) when a third person, not interested in the obligation, pays with the express or tacit approval of the debtor."

REMEDY:

1. 1. If a third person pays on behalf of the debtor, WITHOUT his consent or against his will, the obligation is extinguished. Consequently, the payer may recover from the debtor in so far as the amount that benefited the latter; however, the third person will not gain the rights of the creditor.

   2. If a third person pays on behalf of the debtor WITH his consent, the obligation to the creditor is extinguished. However, if the payment was done under intention of reimbursement, then the payer becomes the new creditor.  

ILLUSTRATION:

Gab owes Cess the sum of P2.7 million. Bryan is Gab’s guarantor. Gab made a partial payment to Cess of P1.35 million. Therefore, half of the debt still remains unpaid. Jobert, Gab’s admirer, assumed that the latter still owed Cess P2.7 million and settled that full amount against Gab’s will.

QUESTIONS:

1) May Jobert recover from Gab?

2) If so, how much?

3) If Gab cannot pay, may Jobert proceed against Bryan, the guarantor?

ANSWERS:

1) Yes, Jobert may recover from Gab.

2) Jobert can recover only P1.35 million because it is the amount to which Gab has been benefited. Remember that previously the half had been paid, leaving a balance of merely Р1.35 million.

3) If Gab cannot pay, Jobert cannot proceed against Bryan, the guarantor, because Jobert is not entitled to subrogation on the premise that he paid against Gab's will. 

RULE: The absence of intention to be reimbursed connotes that the payment is a donation in form. 

REMEDY: 

1. If payment as donation is made by a third person WITH the debtor’s consent, the obligation is extinguished. 

2. If payment as donation is made by a third person WITHOUT the debtor’s consent but is with creditor’s acceptance, the payment is considered valid and the obligation is extinguished. Should the payer change his mind, he may still recover, from the debtor, the amount which has benefitted the latter. 

ILLUSTRATION: 

Pinky owes Emma P37,400. Edissa, on behalf of Pinky, pays Emma the P37,400 against Pinky’s will, although Edissa had previously told Pinky that she (Edissa) did not intend to be reimbursed. Needless to say, Emma accepted Edissa's payment on Pinky's behalf. 

(a) Is Pinky’s obligation to pay Emma extinguished? 

(b) May Edissa still recover from Pinky, the amount of which she paid as donation, because of the fact that Pinky did not agree to it?

ANSWERS:

(a) Yes. Pinky’s obligation is extinguished because according to the law, "the payment is in any case valid as to the creditor who has accepted it." (2nd sentence, Art. 1238, Civil Code)

(b) Yes; however, Edissa may only recover in so far as the amount has benefited Pinky.

RULE: Payment by an incapacitated person is not valid. 

EXCEPTION: “When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.” (Art.1427) 

REMEDY: The thing paid may be recovered. 

ILLUSTRATION: 

Alli, a minor, entered into a contract with Fran, without the consent of her parents. In said contract, Alli was supposed to pay Fran the sum of P300,000. Fran was unaware of Alli’s minority, and when Alli voluntarily paid her the money, Fran accepted the sum. Out of this amount, Fran spent P289,000. Later, the parents of Alli learned of the transaction, and brought an action in court to recover the P300,000 paid to Fran. How much can the parents recover from Fran?

ANS.: The parents can recover only P11,000 because the P289,000 had already been spent in good faith.

To whom payment must be made:  

• the person in whose favor the obligation has been constituted (creditor or obligee);  

• his successor in interest (like an heir or assignee); or 

• any person authorized to receive it.  

General Rule: If payment is made to a person other than those enumerated in Art. 1240, it shall not be valid.

Article 1240 of the Civil Code of the Philippines sets forth the regulations concerning the proper recipients of payments for obligations. It prescribes the individuals who are entitled to receive payments, which may include the creditor, their successor in interest, or duly authorized representatives.

Let's break down this article and provide examples. 

• Payment to the Creditor or Obligee:

The most straightforward scenario is when a debtor makes a payment directly to the creditor. This is the default and expected way to fulfill an obligation.

Example: RM owes Jungkook Php 50,000. RM makes a payment of Php 50,000 directly to Jungkook. In this case, the payment is made to the person in whose favor the obligation was constituted.

• Payment to the Successor in Interest (Heir or Assignee):

The article also allows payment to be made to the successor in the interest of the creditor. This could be an heir or an assignee. 

Example: Suppose Jungkook passes away, and in his will, he designates his brother Jimin as the heir to receive any outstanding debts, including the 50,000 pesos owed by RM. In this case, RM can make the payment to Jimin, as he is the successor in interest to Jungkook's rights.

• Payment to a Person Authorized to Receive it:

The article further mentions that payment can be made to any person authorized to receive it. This authorization can be explicit or implied, and it often arises from an agreement between the parties. The authority of a person to receive payment for the creditor may be: 

a.) legal – conferred by law (e.g., guardian of the incapacitated, administrator of the estate of the deceased).

Example: If Jungkook, due to a medical condition, is declared incapacitated by the court, payment of the 50,000 pesos should be made to Taehyung, his court-appointed guardian, as he has the legal authority to receive payments on his behalf.

b.) conventional – when the authority has been given by the creditor himself (e.g., agent who is appointed to collect from the debtor).

Example: If Jungkook appoints Jin as his authorized agent to collect the 50,000 pesos from RM, RM should make the payment to Jin, as he has been conventionally authorized by Jungkook to receive the payment.

General Rule: If payment is made to a person other than those enumerated in Art. 1240, it shall not be valid. 

Exceptions: In some cases, a third party may be authorized to receive payments on behalf of the creditor, which will be discussed in Article 1241 of the Civil Code of the Philippines.

Article 1241 of the Civil Code of the Philippines deals with the validity of payments made to incapacitated persons and third parties on behalf of a creditor. Let's delve into this article using examples.

Let's break down this article and provide examples. 

Payment to an Incapacitated Person

General Rule: By default, payments made to a person who is incapable of managing their property are considered invalid.

Exceptions:

• If the incapacitated person kept the thing delivered: This implies that even if the incapacitated person can't manage their finances, the payment is valid if they physically possess the money or item.  

Example: Suho suffered a temporary mental illness, rendering him unable to handle his affairs. Chanyeol owed Suho 66,000 pesos and paid him this amoun. Suho, although incapacitated, kept the money securely. In this case, the payment becomes valid.

• Payment has benefited the incapacitated person: If the payment has improved the financial situation or well-being of the incapacitated person, it is also considered valid.

Example: Suho is in a coma due to a severe accident, and Chanyeol owes him 6,600,000 pesos. Chanyeol decides to use this money to cover Suho's medical expenses. The payment benefits Suho by ensuring he receives proper medical care, making it valid under Article 1241.

Payment to a Third Person

General Rule: Payments made to a third party on behalf of the creditor are considered invalid unless specific conditions are met.

Exceptions:

Debtor proves that the payment has redounded to the benefit of the creditor: If the debtor makes a payment to a third person on behalf of the creditor, the payment is considered valid if it can be proven that this payment ultimately benefits the creditor. This is different from the general rule that would typically render such payments invalid.

Example:

Suho owes Chanyeol 660,000 pesos for a loan Chanyeol provided him to start a business. Suho decides to make a payment of 660,000 pesos to Sehun, a close friend of Chanyeol. Suho and Sehun have an understanding that this money will be used to settle Suho's debt with Chanyeol. Now, If Suho can provide evidence that the payment has redounded to the benefits of Chanyeol, the payment to Sehun is deemed valid.

In the following cases the debtor doesn't need to prove that payment has redounded to the benefit of the creditor: 

• If after the payment, the third person acquires the creditor's rights: In this scenario, the payment becomes valid when the third person takes over the creditor's rights.

Example: Chanyeol owes Suho 66,000 pesos. Instead of paying Suho directly, Chanyeol pays the amount to Suho's friend, Kai, who Suho later authorizes to collect the debt since he also has a debt to Kai which is the same amount of Chanyeol's debt to him. In this case, the payment to Kai is valid because Kai has acquired Suho's rights as the creditor.

• If the creditor ratifies the payment to the third person: If the creditor, in this case, Chanyeol, confirms or approves the payment made to the third party, it becomes valid.

Example: Chanyeol owes Suho 66,000 pesos, and he pays this amount to Suho's neighbor, Baekhyun. Since during the day of their agreed-upon due date, Suho was out of the country. After paying Baekhyun, he immediately informed Suho. Suho confirms that the payment was made to his neighbor (third party). This ratification by Suho makes the initial payment to Baekhyun valid.

• If the creditor's conduct leads the debtor to believe the third person had authority: If the creditor's actions make the debtor believe that a third person had the authority to receive the payment, then the payment is considered valid.

Example: Chanyeol knows that Suho is often away on business trips. He usually pays his debt to Suho's business partner, Sehun. Chanyeol assumes that he can pay his debt to Sehun. The payment to Sehun is valid because in some series of events that Chanyeol pays his debt to the third person, Suho always ratifies the payment. This led Chanyeol to believe that Sehun had the authority to receive the payment.

Protection of the Debtor

Article 1242 of the Civil Code of the Philippines is designed to protect debtors from potential unfair treatment when they make payments. It recognizes that in certain financial transactions, it might not be immediately clear who the true creditor is, leading to scenarios where a debtor, acting in good faith, makes payments to someone who appears to be the creditor. This legal provision ensures that such payments are considered valid, even if they are made to an apparent creditor, preventing the debtor from facing the burden of repaying the same debt multiple times.

Possession of Credit vs. Possession of Document

Differentiating between "possession of credit" and "possession of the document" holds significant importance in financial transactions and contractual relationships. It upholds the legal rights of both creditors and debtors by preventing situations where individuals with mere possession of the document but no valid claim to the credit attempt to collect payments improperly, thus enhancing the integrity and fairness of financial transactions. Additionally, this differentiation acts as a deterrent against fraudulent or deceptive practices, contributing to the overall trustworthiness of business dealings. 

Possession of Credit:

• Definition: Possession of credit refers to the scenario where a person holds an actual and legally recognized relationship with the credit or debt, even if they are not the true creditor.

• Legal Significance: When someone has possession of credit, it means they have a legitimate basis to receive payments associated with the credit. This possession is not merely physical but implies a recognized legal connection to the obligation.

• Key Points:

• The possessor of credit may include successors in interest, authorized agents, or individuals legally empowered to receive payments.

• This concept acknowledges that the true creditor may delegate their right to collect payments to another party legally or by agreement.

Possession of the Document:

• Definition: Possession of the document refers to having physical control over a written instrument or document that represents a credit or debt, such as a promissory note.

• Legal Significance: Possession of the document alone does not establish a legitimate claim to the underlying credit. It is essentially holding the written evidence of the debt but does not imply an automatic right to collect payments.

• Key Points:

• The possessor of the document may include anyone who physically holds the written evidence of the debt, whether or not they have a legal claim to the credit.

• This concept emphasizes that the possession of the document is not sufficient to prove a valid right to receive payments unless there is an associated legal or contractual relationship.

Example 1 - Possession of the Document (Valid Payment):

G-Dragon owes a debt to Sandara and has given her a promissory note detailing the debt's terms. Sandara possesses the promissory note, which she hasn't transferred to anyone else. G-Dragon makes a payment to Sandara, following the terms of the promissory note. This payment is valid because it is made honestly to the true creditor (Sandara) and fulfills the debt obligation as specified in the legally binding document.

Example 2 - Possession of the Document (Not Valid Payment):

G-Dragon owes a debt to Sandara, and they have a promissory note outlining the debt. Despite Sandara's possession of the promissory note, G-Dragon disputes the debt's validity and the amount owed. G-Dragon makes a partial payment to Sandara solely based on her possession of the promissory note, without addressing the dispute. This payment may not be considered valid because it does not resolve the underlying dispute, and possession of the document alone does not release G-Dragon from the disputed portion of the debt.

Example 3 - Possession of Credit (Valid Payment):

G-Dragon owes a debt to Sandara, and they have a written agreement outlining the debt's terms. Even though G-Dragon doesn't have the physical document, he makes a payment to Sandara based on the terms specified in the written agreement. This payment is also valid because it is made in good faith to the true creditor (Sandara) and fulfills the debt obligation as per the legally binding agreement.

In summary, Article 1242 serves to protect debtors by distinguishing between possession of credit and possession of the document. Payments made in good faith to someone who possesses the credit, even if they are not the true creditor, are considered valid. However, payments made solely based on possession of the document, without a legal relation to the credit, do not release the debtor from their obligation to the true creditor. This principle underscores the importance of good faith in financial transactions and aims to prevent debtors from being unfairly required to repay the same debt multiple times.

When a creditor obtains a court order to attach or garnish a debtor's assets, it means the court has granted the creditor the right to collect a debt by taking money or property from the debtor. If the debtor then makes a payment directly to the creditor after such an attachment or garnishment has been ordered, this payment is considered void (not valid) to the extent of the amount specified in the court judgment that favors the creditor. 

In simpler terms, if a court orders that the creditor can collect 10,000 pesos from the debtor and later the debtor pays the creditor 5,000 pesos, this payment will be considered void because it doesn't comply with the court order. The debtor still owes the remaining 5,000 pesos.

However, there is a way for the debtor to avoid further liability. They can deposit the money in court, a process known as consignation, to ensure that they have fulfilled their debt obligation as per the court's order.

In this context, the terms "attachment," "injunction," and "garnishment" refer to specific legal actions taken by a creditor to secure or enforce a debt:

1. Attachment: Attachment is a legal process that typically involves obtaining a court order allowing a creditor to seize or retain the debtor's property or assets until the debt is fully satisfied. This serves as a protective measure to secure the creditor's interests.

• Scenario: Consider Kai as the creditor and Sehun as the debtor, who owes him a sum of 20,000 pesos. Determined to recover the debt, Kai initiates legal proceedings and successfully obtains a court order that authorizes him to attach Sehun's bank account as collateral.

• Court Order: In response to Kai's application, the court issues an order specifying that Kai can collect 15,000 pesos from Sehun's account as security against the outstanding debt.

• Payment by Debtor: Unfortunately, Sehun, unaware of the court's attachment order, decides to pay Kai 10,000 pesos directly from his bank account, believing it will suffice to clear his debt.

However, Sehun's payment of 10,000 pesos is rendered void because it contradicts the court's attachment order. Consequently, Sehun remains obligated to pay the outstanding 5,000 pesos to Kai. To absolve himself from further liability and to adhere to the court's directives, Sehun can consign the remaining 5,000 pesos in court as directed by the court's order, thus ensuring comprehensive compliance with the legal process and the resolution of the debt issue.

2. Injunction: An injunction, as a legal remedy, serves as a court order that can either compel or restrain specific actions. In the context of creditor-debtor relationships, an injunction can restrict the debtor from making independent payments or asset transfers during a debt dispute.

• Scenario: Suppose Sehun owes Kai a debt of 25,000 pesos, and Kai, in pursuit of debt recovery, seeks legal intervention. The court, in response to Kai's request, issues an injunction order that explicitly prohibits Sehun from making any payments or asset transfers until the debt dispute is resolved.

• Court Order: The court's injunction order serves to restrict Sehun from settling the debt in any manner other than as prescribed by the court itself.

• Payment by Debtor: Unfortunately, Sehun, unaware of the court's injunction order, decides to pay Kai 10,000 pesos directly from his bank account, believing it will sufficiently clear his debt.

In this situation, Sehun's payment of 10,000 pesos directly to Kai is void because it contradicts the court's injunction order, which explicitly prohibits Sehun from making payments independently. Consequently, Sehun still holds a debt of 15,000 pesos as stipulated in the court's order. To absolve himself from further liability and to adhere to the court's directives, Sehun should deposit the remaining 15,000 pesos in court through consignation, thus ensuring complete compliance with the legal process.

3. Garnishment: Garnishment is a legal process employed by creditors to collect debts directly from a debtor's wages or bank accounts. It allows creditors to access a portion of the debtor's income or funds to satisfy the outstanding debt.

• Scenario: In a similar vein, envision Kai as a creditor, with Sehun being the debtor who owes him 30,000 pesos. Kai pursues legal action and successfully obtains a court-issued garnishment order, enabling him to collect the debt directly from Sehun's wages.

• Court Order: The court's garnishment order specifies that Kai can collect 20,000 pesos from Sehun's wages as a means of debt recovery.

• Payment by Debtor: Regrettably, Sehun, under the mistaken belief that he can settle the entire debt, pays Kai 15,000 pesos directly from his salary.

In this scenario, Sehun's payment of 15,000 pesos is void to the extent of the court's order, which authorizes the collection of 20,000 pesos. Consequently, Sehun still maintains a debt of 5,000 pesos owed to Kai. To relieve himself from further liability and to adhere to the court's directives, Sehun can deposit the remaining 5,000 pesos in court through consignation, thus ensuring comprehensive compliance with the legal process and the resolution of the debt matter.

Scenarios where Payment made to the creditor by the debtor are valid:

1. Payment Prior to Judicial Order: Payment made by the debtor to the creditor before any judicial order is issued is unequivocally regarded as valid. In this context, the court's intervention has not yet transpired, and therefore, the payment retains its recognition as legally sound.

Example: Let's consider a scenario where Sehun owes Kai a substantial sum of money. However, before any formal legal action is taken, Sehun voluntarily takes the initiative to pay Kai the debt in full. In this instance, the payment holds its validity since it occurred before any judicial orders were invoked. Sehun's proactive approach to settle the debt circumvents the necessity for legal intervention, thus establishing the payment as legally recognized and binding.

2. Payment After Legal Order is Lifted: Another scenario wherein payments made by the debtor to the creditor are deemed valid occurs when the court initially issues an order for the debtor to retain the debt, but subsequently lifts or cancels that order. In such cases, any payments made by the debtor to the creditor after the order's revocation are recognized as valid.

Example: Imagine a scenario where Kai takes legal action against Sehun to recover a debt. In response, the court issues an order telling Sehun to keep the outstanding debt without paying it to Kai. However, later on, due to things like new evidence coming to light, a change in the situation, or Sehun successfully challenging the court's decision, the court changes its mind. It lifts the order, which means Sehun is no longer obligated to hold onto the debt. As a result, any payments that Sehun makes to Kai after the court lifts the order are considered valid and can be legally enforced.

Article 1243 of the Civil Code of the Philippines is a vital legal provision that regulates payments in situations where a court has ordered a debtor to retain a debt. It emphasizes the importance of adhering to court decisions and ensures that subsequent payments made by the debtor directly to the creditor in violation of such orders are not legally recognized. Understanding and applying this article is essential for maintaining the integrity of the legal system and the resolution of debt-related disputes.

Article 1244 of the Civil Code of the Philippines pertains to the rules and limitations regarding the substitution of things, acts, or forbearances in obligations. In this detailed explanation, we will discuss the general rule established by this article, as well as the exceptions that may apply, including facultative obligations, other agreements such as dation in payment and novation, and the waiver by the creditor.

The general rule outlined in Article 1244 is that the debtor, the party obligated to fulfill a certain obligation, cannot compel the creditor, the party to whom the obligation is owed, to accept a different thing, act, or forbearance in lieu of what is originally due. This rule is anchored in the principle of sanctity of contracts, which emphasizes the importance of upholding the terms and conditions initially agreed upon by both parties. In essence, the debtor must fulfill the obligation as it was originally stipulated, and the creditor has the right to expect the precise performance of that obligation.

Now, let's delve into the exceptions and circumstances under which this general rule may not apply:

Exceptions:

1. Facultative Obligation:

A facultative obligation is one where a party is obligated to perform a certain action, but they have the option to choose an alternative performance that is not specifically outlined in the contract. In this case, the debtor can offer a substitute prestation, and the creditor has the option to accept it or not. If the creditor accepts the substitute, the original obligation is considered discharged.

Example: Rose owes Lisa 880,000 pesos as a loan but, she may choose to fulfill her debt by providing Lisa with a piece of valuable artwork of equivalent value as a substitute. However, Rose must explicitly inform Lisa of her choice. If Lisa accepts the artwork as a valid form of repayment, the debt is considered satisfied, and Rose's obligation to pay 880,000 pesos is discharged.

2. Other Agreement Resulting in:

• Dation in Payment

• Dation in payment (also known as dacion en pago) is an agreement where the debtor offers and the creditor accepts a thing different from what is originally owed to satisfy the obligation.

• To validate dation in payment, there must be a specific agreement between the debtor and creditor, and the new thing offered must be accepted by the creditor as an extinguishment of the original obligation.

Example: Rose owes Lisa 880,000 pesos, but she is unable to pay in cash. Rose proposes to transfer ownership of her car, which is valued at 880,000 pesos, to Lisa as a settlement for the debt. Lisa agrees to accept the car as full payment, and they execute a dation in payment agreement.

• Novation:

• Novation is a legal concept where the terms and conditions of an existing contract are altered or replaced by a new agreement.

• If both the debtor and creditor agree to novate the original obligation and include a substitute in the new agreement, the original obligation is extinguished, and the substitute takes its place. This can involve changes in the prestatio, conditions, or parties involved in the obligation.

Example: Rose owes Lisa 880,000 pesos as part of their business agreement, but they decide to restructure their arrangement. They draft a new contract that includes different terms, such as extending the payment period and changing the interest rate. By mutual agreement and through the novation process, the original debt obligation of 880,000 pesos is replaced by the terms outlined in the new contract.

3. Waiver by the Creditor:

• The creditor has the prerogative to waive their right to demand strict compliance with the original obligation.

• If the creditor willingly accepts a different thing, act, or forbearance in satisfaction of the debt, this constitutes a waiver of the original obligation's strict performance. Such acceptance, however, must be unequivocal and clearly indicate the creditor's intention to accept the substitute.

Example: Rose owes Lisa 880,000 pesos, but due to unforeseen financial difficulties, she offers to pay 440,000 pesos in cash and 440,000 pesos worth of valuable jewelry. Lisa understands Rose's situation and decides to accept this arrangement. By doing so, Lisa waives her right to demand the full cash payment as stipulated in the original agreement, and she accepts the modified payment arrangement.

In summary, Article 1244 of the Civil Code of the Philippines establishes the general rule that a debtor cannot compel a creditor to accept a different thing, act, or forbearance than what was initially agreed upon. However, there are exceptions, including facultative obligations, dation in payment, novation, and waiver by the creditor, which may allow for the substitution of the original obligation under certain circumstances. These exceptions provide flexibility and room for negotiation in contractual relationships while preserving the integrity of contracts and the rights of both parties involved.

Article 1245 of the Civil Code of the Philippines discusses mentioned the four (4) special forms of payment, and one of these methods is called "dation in payment. In this article, we will take a closer look at dation in payment, understanding what it means, its essential requirements, the laws that govern it, and how it differs from the usual way of settling debts with money. 

Meaning of Dation in Payment

Dation in Payment: Dation in payment, also known as "daciom en pago " or "adjudication,” is a unique method of settling a debt. Instead of making a cash payment, the debtor offers to provide the creditor with a specific asset or right as satisfaction of the debt. This asset could be tangible, such as a car, or intangible, like a patent or a usufruct.

Example: In this scenario, Seulgi decides to transfer her collection of vintage books to Irene to settle her $3,000 debt. Once Irene accepts the books, the debt is considered satisfied through dation in payment.

Requisites of Dation in Payment

1. Mutual Consent: Both parties, the debtor (Seulgi) and the creditor (Irene), must agree to the dation in payment arrangement voluntarily. This mutual consent is a fundamental requirement for the transaction.

2. Existence of a Debt: There must be a legitimate and outstanding debt that the debtor owes to the creditor. Without a debt, there is no basis for dation in payment.

3. Transfer of Ownership: The debtor must transfer full ownership of the specified property or right to the creditor. The transfer should be legally effective.

4. Acceptance by Creditor: The creditor must willingly accept the property or right offered by the debtor as satisfaction of the debt. Acceptance finalizes the dation in payment.

Example: Seulgi and Irene enter into an agreement where Seulgi owes Irene $4,000 for a loan. To settle the debt, Seulgi transfers her vintage vinyl record collection to Irene. Irene accepts the records, indicating her agreement to the dation in payment.

Governing Law

Dation in payment is governed by the law of sales, which means that the legal framework and regulations surrounding the transfer of ownership and property in sales transactions apply to dation in payment.

Example: When Seulgi transfers her vintage vinyl records to Irene to satisfy her debt, the transaction is subject to the relevant laws and regulations pertaining to the sale of personal property within their jurisdiction.

Sale Distinguished from Dation in Payment

Sale

• Transactional Objective: Sales transactions are primarily centered around the exchange of property or goods for a specified monetary price. 

• Parties Involved: A typical sale involves two primary parties—the buyer and the seller. The buyer seeks to acquire ownership of the asset, while the seller intends to transfer that ownership in exchange for the agreed-upon price.

• Intent: The fundamental intention in a sale is the acquisition of ownership of a tangible or intangible asset. This could range from purchasing physical items like a car or a piece of art to acquiring intangible assets such as patents or copyrights.

• Consideration: The consideration in a sale is the money paid by the buyer to the seller. It is the medium of exchange that facilitates the transfer of ownership. The consideration is typically a predetermined sum agreed upon by both parties.

• Primary Focus: The primary focus of a sale is the transfer of ownership of the asset from the seller to the buyer. This transfer is made in consideration of the monetary payment, and the parties involved are motivated by acquiring the asset itself.

• Legal Framework: Sales transactions are subject to specific laws and regulations that govern the sale of goods or assets. These legal frameworks outline the rights and responsibilities of the buyer and seller in the transaction.

• Example: If Seulgi sells her laptop to Irene for $500, it is a typical sale transaction. Irene pays $500 as the consideration, and in return, she acquires ownership of the laptop.

Dation in Payment

• Transactional Objective: Dation in payment is primarily aimed at satisfying or discharging an existing debt. Instead of a traditional buying-and-selling transaction, it is a unique method for resolving financial obligations.

• Parties Involved: In dation in payment, the key parties are the debtor (Seulgi) and the creditor (Irene). The debtor seeks to use a specific asset or right to settle an outstanding debt with the creditor.

• Intent: The core intention of dation in payment is debt settlement. The debtor transfers a particular property or right to the creditor to extinguish the existing financial obligation.

• Consideration: In dation in payment, the consideration is the specific property or right transferred by the debtor. This property or right becomes the equivalent value of the debt that is being settled.

• Primary Focus: The primary focus of dation in payment is the resolution of the debt. It differs from a sale where the focus is on obtaining the asset itself; here, the asset is used as a means to settle the debt.

• Legal Framework: While dation in payment falls under the law of sales when it comes to the transfer of property, its primary focus is on debt settlement. Thus, it operates within the legal framework of contract law and debt obligations.

Example: If Seulgi transfers her camera to Irene to settle a $300 debt, this constitutes dation in payment. The camera serves as the means to settle the existing debt, with its value equivalent to the debt amount.

Transmission of Ownership to Creditor

Transmission of ownership to the creditor, as seen in the concept of dation in payment, is a legal process through which ownership of a specified property or right is transferred from the debtor (in this case, Seulgi) to the creditor (Irene) when the creditor accepts the offered property or right as a means of settling a debt. This process is a fundamental aspect of contract law and is used when parties wish to discharge their financial obligations in a non-monetary form. 

Article 1246 deals with situations in which a contract involves the delivery of a generic item but does not define the quality or specific qualities of the item. In such cases, the law prohibits the creditor from demanding a higher-quality item than is typical or reasonable for a generic item. Similarly, the debtor is not allowed to deliver an inferior or low-quality item.

For example, Alyssa, a farmer, enters into a contract to sell a "bushel of apples" to Ryan, the owner of a grocery store. The contract provides no information regarding the apples' quality or specific conditions. It simply specifies that Alyssa will deliver a bushel of apples to Ryan on a specified day and for a specified price.

1.  CREDITORS PERSPECTIVE (Ryan, owner of the grocery store);

• Ryan cannot insist on receiving apples of specific varieties as part of the bushel.

• Ryan's expectations should be reasonable for a bushel of apples.

2. DEBTORS' PERSPECTIVE (Alyssa, the Farmer);

• Alyssa cannot provide apples that are overripe, damaged, or spoiled.

• She has a responsibility to provide apples that meet the standard quality requirements for a bushel of apples.

3.  CONSIDERING PURPOSE AND CIRCUMSTANCES;

• If the contract specifies that the apples are meant for making applesauce, it is important to take this into account when assessing the quality of the apples. They should be suitable for that purpose.

Article 1247 addresses the allocation of expenses related to obligations and contracts. It outlines how these expenses, both extrajudicial and judicial, are to be divided between the debtor and the creditor. 

EXTRAJUDICIAL EXPENSES:

• Unless a specific agreement states otherwise, extrajudicial expenses required to make a payment are the debtor's responsibility.

• In other words, if the debtor must incur any expenses in order to fulfill their payment obligation, they must cover those expenses.

JUDICIAL COSTS:

• When it comes to judicial costs, on the other hand, the provision refers to the "Rules of Court" to determine how these costs are allocated.

• Typically, the "Rules of Court" explain the procedures and rules for conducting legal proceedings within a certain jurisdiction. These regulations may stipulate how litigation costs, such as court fees, attorney fees, and other related expenses, are divided among the parties concerned.

• This means that judicial costs are allocated in accordance with the specific procedural norms and regulations established by the legal system in which the dispute is being handled. It may differ from one jurisdiction to the next.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter.

1. NO COMPULSION FOR PARTIAL RECEIPT OR PAYMENTS:

• Creditors cannot be forced to accept partial prestations (partial fulfillment of the obligation) by default, unless there is a clear agreement (express stipulation) to the contrary in the contract, and debtors cannot be forced to make partial payments.

• In other words, both parties are normally expected to complete their responsibilities in full, and neither can be forced into accepting or making partial payments against their choice.

2. LIQUIDATED AND UNLIQUIDATED DEBTS:

• When a debt has both liquidated and unliquidated parts, an exception is made. A liquidated debt is one having a known and determined amount, whereas an unliquidated debt is one with an unknown amount.

• In such instances, the creditor has the authority to demand payment, and the debtor can pay the liquidated portion of the obligation without having to wait for the unliquidated portion to be resolved.

• This means that if a portion of the debt is clear and established (liquidated), the creditor can demand payment without waiting for the resolution of any disputes or doubts regarding the unliquidated component.

PAYMENT IN STIPULATED CURRENCY:

• When a debt is to be paid in money, it should be made in the currency that has been explicitly agreed upon in the contract (stipulated currency).

• Parties to a contract have the freedom to specify in their agreement the particular currency in which payments should be made. This provides clarity and ensures that both parties are on the same page regarding the currency of payment.

IF NOT POSSIBLE:

• In cases where it's not possible to deliver the stipulated currency (for various reasons such as currency restrictions or unavailability), the payment should be made in the currency that is recognized as legal tender in the Philippines.

• Legal tender refers to the officially recognized currency that must be accepted for payments of debts and transactions within a country. In the Philippines, the legal tender currency is typically the Philippine Peso (PHP).

Assume Micah, a Filipino business owner, enters into a contract to purchase equipment from a foreign supplier situated in the United States. They agree in the contract that payment for the equipment will be made in US dollars (USD).

• If Micah has access to USD, she is required to make the payment in USD as specified in the contract.

• If, for whatever reason, she is unable to obtain USD (for example, due to foreign exchange regulations), she must make the payment in the Philippine currency, the Philippine Peso (PHP), at the current exchange rate.

Article 1250 addresses the impact of extraordinary inflation or deflation on the value of the currency stipulated in an obligation or contract. It establishes guidelines for determining the basis of payment in such exceptional economic circumstances. 

EXTRAORDINARY INFLATION OR DEFLATION:

• Article 1250 applies when there is an exceptional and significant change in the value of the currency that was originally stipulated in the contract. Extraordinary inflation refers to a rapid increase in prices and a decrease in the currency's purchasing power, while extraordinary deflation signifies a significant decrease in prices and an increase in the currency's purchasing power.

BASIS OF PAYMENT:

• In cases of such extraordinary currency fluctuations, the value of the currency at the time the obligation or contract was made will serve as the payment basis.

• This indicates that, regardless of current economic conditions, the contracting parties will revert to the original exchange rate or value of the currency as it was when the agreement was made.

THERE IS AN AGREEMENT:

• Article 1250, on the other hand, allows for an exemption. If the contract expressly states how payments should be adjusted in the event of extraordinary inflation or deflation, that agreement will take precedence.

• To account for the impact of currency changes, parties might negotiate and include specific provisions in their contract, thus deviating from the default rule mentioned in this provision.

Article 1251 addresses the place or location of payments under obligations and contracts. It also addresses instances in which there is no specific agreement about the place of payment and cases in which the debtor changes their domicile. 

PAYMENT IN DESIGNATED PLACE:

GENERAL RULE: Payment should be made at the place specified or agreed upon. Parties can agree on a place for payment and are required to follow through on that decision.

PAYMENT FOR A DETERMINATE THING:

• When the obligation involves the delivery of a specific or determinate thing and no specific agreement specifying the place of payment, payment should take place wherever the item is placed at the time the obligation was established.

PAYMENT AT THE DEBTOR'S DOMICILE:

• When the payment location is not clearly stated in the contract and the obligation is not to deliver a specific thing, the default place of payment is the debtor's domicile (legal residence)). In the absence of a prior agreement, this ensures a practical and easy location for payments.

ADDITIONAL EXPENSES FOR CHANGES IN DOMICILE:

• If the debtor changes their domicile in bad faith (intended to avoid payment) or after incurring a delay in performing the obligation, the debtor is responsible for any additional expenses incurred as a result of this move. This prevents debtors from attempting to avoid payment responsibilities by changing their residence.

VENUE UNDER THE RULES OF COURT:

• The provision clarifies that these regulations governing payment location do not supersede any specific venue rules or requirements imposed by the Rules of Court. Legal venue restrictions may dictate where a lawsuit or legal action can be brought, which may differ from the location of payment.

Assume Ellah owes Aries money but did not specify a payment place in their contract. Ellah's residence at the time the contract was established was in Manila, Philippines.

• Because Ellah did not mention an alternate location in the contract, the default place of payment would be Ellah's residence in Manila.

• If Ellah changes her domicile to a different city in order to avoid her obligation after incurring a payment delay, any additional expenses incurred as a result of this change would be her responsibility, as specified in the provision.