Law on Obligation and Contracts Reviewer

Payment or performance payment means not only the delivery of money but also the performance, in any other manner of an obligation. How must the payment be made?  There must be delivery of the thing or rendition of the service that was contemplated.  The debtor of a thing cannot compel the creditor to accept a different one although the latter may be of the same value as, or more valuable than that which is due.  In obligation to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the creditor’s will. c In obligation to give generic thing whose quality and circumstance 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 must be taken into consideration.  If the obligation is a monetary obligation, the payment must be in legal tender. The payment or performance must be complete.

If the obligation has been substantially performed in good faith, the debtor may recover as though there had been complete fulfillment less damages suffered by the creditor. When the creditor accepts the performance knowing its incompleteness or irregularity and without expressing any protest or objection. Who must make the payment? Payment must be made by the debtor who must possess the following:  the free disposal of the thing due; and – the property must not be subject of any claim by third person.  the capacity to alienate the thing. – debtor must not be incapable of giving consent otherwise the payment is void.

Payment by a third person The creditor is not bound to accept payment or performance by a third person EXCEPT in the following cases: when there is a stipulation to that effect . when the third person has an interest in the fulfillment of the obligation (example: guarantor) Rights of a third person who makes the payment a. payment with knowledge and consent of the debtor . third person can recover what he has paid from the debtor . third person is entitled to be subrogated in the rights of the creditor b. payment without the knowledge or against the will of the debtor 1. e can recover only insofar as the payment has been beneficial to the debtor . he is not entitled to subrogation Payment by a third person who does not want to be reimbursed .The payment shall be deemed to be donation which requires the debtor’s consent. To whom shall payment be made?  to the creditor’s successors in interest . to any person authorized to receive payment Payment to an unauthorized third person General Rule: Not valid Exceptions:  Payment has redounded to the benefit of the creditor. Payment is made in good faith to a third person in possession of the credit. Where payment must be made?

If there is a stipulation, then in the place designated.  If there is no stipulation a. to give determinate thing – wherever the thing must be at the time the obligation was constituted. b. to give generic thing or an obligation to do – domicile of the debtor Special forms of payment . Dation in payment (Dacion en pago) – it is a special form of payment where the ownership of a property belonging to the debtor is transferred to his creditor to a debt in money. . Application of payment – it is the designation of the debt to which payment shall be applied when the debtor owes several debts in favor of the same creditor. Procedure: the debtor is given the preferential right to apply the payment designates the debt to be paid.  if the debtor does not make the designation, the creditor makes it by indicating the debt being paid in his receipt if neither the debtor nor the creditor makes the designation or application: payment shall be applied to the debt which is the most onerous b. if the debts are the same – to all debts proportionately

Payment by cession – it is the abandonment or assignment by the debtor of all his property in favor of his creditors so that the latter may sell them and recover their claims out of the proceeds. Requisites: there must be two or more creditors;  the debtor is insolvent; the debtor abandons all his properties  the creditors accept the abandonment Note: The cession or assignment operates only to authorize the creditors to sell the debtor’s property, hence, ownership is not transferred to them.  Tender of payment and consignation Tender of payment is the act of the debtor of offering to his creditor what is due him. Consignation is the act of depositing the sum or thing due with the judicial authorities whenever the creditor refuses without just cause to accept the same, or in the cases when the creditor cannot accept it.

Effect of consignation duly made -The debtor may ask the judge to order the cancellation of the obligation. The obligation shall be extinguished after the creditor has accepted the consignation or the judge has declared that the consignation has been properly made. When consignation, without a previous tender of payment, will produce the same effect:  the creditor is absent or unknown or does not appear at the place of payment,  the creditor is incapacitated to receive the payment at the time it is due when, without just cause, he refuses to give receipt two or more persons claim the same right to collect.