Payment or Performance

Question 1

payment

Answer 1

means not only the delivery of money but also the performance, in any other manner, of an obligation. (Art. 1232,
NCC.)

Question 2

May a third person compel the creditor to accept payment or performance of an obligation?

Answer 2

As a general rule, no. However, there are exceptions:
(1) When it is made by a third person who has an interest in the fulfillment of the obligation. (Art. 1236, NCC.)
(2) When there is a stipulation to the contrary. (Art. 1236,
NCC)

Question 3

In payment, if a third person pays an obligation, what are the rights which are available to him?

Answer 3

There are two (2) rights which are
available to him.
1. he can recover from the debtor the entire amount which he has paid (Art. 1236, par. 2, NCC.);
2. he is subrogated to all of the rights of the creditor. (Art. 1302, No. 2, NCC.) However, if the payment is made without
the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the said debtor. (Art. 1236, par. 2,
NCC.)

Question 4

To whom must payment be made?

Answer 4

Payment shall be made, as a general rule, to:
(1) the person in whose favor the obligation has been constituted, or
(2) his successor in interest, or
(3) any person authorized to received it.
(Art. 1240, NCC.)

Question 5

Suppose that payment is made to a person other than those stated in Art. 1240 of the NCC, what is the effect?

Answer 5

It shall not be valid. There are, however, two (2) exceptions to this rule. They are:

1. payment made to a third person, provided that it has redounded to the benefit of the creditor; and
2. payment made to the possessor of the credit, provided that it was made in good faith. (Arts. 1241, par. 2, and 1242, NCC.)

Question 6

According to the NCC (Art. 1241), payment made to a third person shall be valid insofar as it has redounded to the benefit of the creditor. When is such benefit to the
creditor presumed?

Answer 6

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.
   (Art. 1241, par. 2, NCC.)

Question 7

On June 15, 1958, D borrowed P10,000 from C. The debt is evidenced by a promissory note signed by D, as
principal debtor, and by G, as guarantor, by virtue of which it was promised that the entire debt shall be paid on June 15, 1962. When the note matured, P, a third person, paid the entire debt of P10,000 to C. The payment was made with the consent of D. If P proceeds against D for reimbursement of the amount which he paid to C, and D cannot pay by reason of
insolvency, can he now proceed against the guarantor, G? Reason.

Answer 7

If P proceeds against D for reimbursement of the P10,000 which he has paid to C, and D cannot pay by reason of insolvency, he can now proceed against the guarantor, G, for reimbursement.
Under the law, if a third person pays the obligation with the consent or approval of the debtor, he is subrogated to all of the rights of the creditor, not only against the debtor, but even against third persons, such as those arising from a guaranty. (Arts.
1237, 1302, No. 2, NCC.)

Question 8

Dation in payment (dacion enpago)

Answer 8

Property is alienated to the creditor in satisfaction of a debt in money (Art. 1245 of the NCC)
A special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding obligation. (Filinvest Credit
Corporation vs. Phil. Acetylene Co., 197 Phil. 394)

Question 9

In domestic monetary obligations, in what currency shall payment be made?

Answer 9

R.A. No. 8183 which was approved last June 11, 1996 substantially states that:
“Sec. 1. All monetary obligations shall be settled in the Philippine currency which is the legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time
of payment.”

Question 10

What is meant by legal tender?

Answer 10

Refers to such currency which may
be used for the payment of all debts, whether public or private.
(Art. 1249 the NCC, R.A. No. 529 and R.A. No. 4100)

Question 11

Suppose that in the above problem, payment was made in emergency notes, is the payment valid?

Answer 11

Yes, payment made in emergency notes is valid. This is so because such notes must be considered as legal tender but
only in those places which were under the control of either the Commonwealth or of the guerilla government issuing the notes.
(Phil. National Bank vs. Teves, L-8706, 8813, December 14,1951.)

Question 12

Can a monetary obligation be paid with promissory note payable to order, or bills of exchange, or other mercantile
documents? Why?

Answer 12

As a general rule, no. Since negotiable papers or mercantile documents, such as promissory notes payable to order or bills of exchange, are not legal tender, it is logical that the delivery of such
papers or documents by the debtor to the creditor shall not produce the effect of payment.

Question 13

What are the exceptions to the rule of legal tender?

Answer 13

1. when the promissory notes payable to order, or bills of exchange or other mercantile documents have been cashed;
   2 when through the fault of the creditor they have been impaired.
   (Art. 1249, par. 2, NCC.)

Question 14

In case an extraordinary inflation or deflation of the Philippine currency should supervene, what value will be the basis of payment — will it be the value of the currency at the time of the establishment of the obligation or the value at the time of payment?

Answer 14

The value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is a
stipulation to the contrary. (Art. 1250s NCC; Singson vs. Caltex [Inc.], G.R. No. 137798, October 4, 2000.)

Question 15

What is meant by extraordinary inflation or deflation of the currency? In order that the rule in Art. 1250 of the NCC is applicable, what requisites must be present?

Answer 15

unusual or beyond the common fluctuation in the value of the currency, which the parties could not have reasonably foreseen or which was manifestly beyond their contemplation at
the time when the obligation was established. (4 Tolentino 284 )

Question 16

When can the effects of extraordinary inflation be applied?

Answer 16

The effects of extraordinary inflation can be applied only when there is an offical declaration by competent authorities.
(Lantion vs.NLRC, 181SCRA513; Commissioner of Public Highways
vs. Burgos, 96 SCRA 831.)

Question 17

Under the NCC, what are the different special forms of payment?

Answer 17

(1) application of payment (Arts. 1252-1254.);
(2) dation in payment (Art. 1245.);
(3) payment by cession (Art.1255.); and
(4) tender of payment and consignation. (Arts. 1256-1261.)
Strictly speaking, however, application of payment, by its very nature, is not a special form of payment.

Question 18

Define application of payment

Answer 18

The designation of the debt to which the payment must be applied when the debtor has several obligations of the same kind in favor of the same creditor.
(8 Manresa, 5th Ed., Bk.} 1, p. 598.)

Question 19

essential requisites of application of payment

Answer 19

1. there must be only one debtor and only one creditor;
2. there must be two (2) or more
   debts of the same kind;
3. all of the debts must be due; and
4. the amount paid by the debtor must not be sufficient to cover the total amount of all the debts.

Question 20

What are the exceptions to the rule that in application of payment, there must be only one debtor and only one creditor?

Answer 20

1.The case of a solidary debtor who may have obligations other than the solidary obligation in favor of the creditor to whom
payment is made.
2.Art. 1792 of the NCC - if a debtor is indebted to a partnership and also to the managing partner at the same time and both debts are already demandable, such debtor if he pays, may apply the payment to his debt to the managing partner, provided that such debt is more onerous to him. Here, actually there are two (2) creditors since the personality of the partnership is separate and distinct from that of the partners.

Question 21

To whom does the right to make an application of payment belong?

Answer 21

As a general rule, the right to make an application of payment belongs to the debtor. However, if he does not avail himself of this right, the creditor may wrest the initiative from him by giving
to him a receipt designating the debt to which the payment shall be applied. But even this does not really constitute an exception, because the debtor may either accept or reject the application. (Art.
1252, NCC.)

Question 22

Define payment by cession

Answer 22

a special form of payment whereby the debtor abandons all of his property for the
benefit of his creditors in order that from the proceeds thereof the latter may obtain payment of their credits. (8 Manresa, 5th Ed., Bk.1, p. 606.)

Question 23

Requisites of payment by cession

Answer 23

1. plurality of debts;
2. partial or relative insolvency of the
   debtor, and
3. acceptance by the creditors.
   In case the creditors do not accept the cession or assignment, a similar result may be obtained by proceeding in accordance with the Insolvency Law. (Act No. 1956, as amended.)

Question 24

What are the different kinds of payment by cession?

Answer 24

Payment by cession may be either contractual or judicial.The cession referred to in Art. 1255 of the NCC is contractual, while the cession which is regulated by the Insolvency Law, and which may be voluntary or involuntary, is judicial.

Question 25

Distinguish between dation in payment and payment by cession as to number of parties.

Answer 25

In dacion en pago there
may be only one creditor, in payment by cession plurality of creditors
is essential.

Question 26

Distinguish between dation in payment and payment by cession As to financial condition of parties.

Answer 26

in dacion en pago the debtor is not, necessarily in a state of financial difficulty,
in payment by cession the debtor is in a state of partial or relative insolvency.

Question 27

Distinguish between dation in payment and payment by cession As to object

Answer 27

In dacion en pago what is delivered
by the debtor is merely a thing to be considered as the equivalent of the performance of the obligation, in payment by cession what is ceded by the debtor is the universality of all his property.

Question 28

Distinguish between dation in payment and payment by cession As to effect

Answer 28

in dacion en pago the payment extinguishes the obligation to the extent of the value of the thing delivered either as agreed upon or as may be proved, unless the silence of the parties signifies that they consider the delivery of the thing as the equivalent of the performance of the obligation, in payment by cession the effect is merely to release the debtor for the net proceeds of the things ceded or assigned, unless there is a contrary intention. (8 Manresa, 5th Edpp. 611-612; 3 Castan, 7th Ed., p. 257.)

Question 29

Define tender of payment and consignation

Answer 29

Tender of payment consists in the manifestation made by the debtor to the creditor of his decision to comply immediately with his obligation. Consignation, on the other hand, refers to the deposit of the object of the obligation in a competent court in accordance with
the rules prescribed by law after refusal or inability of the creditor to accept the tender of payment. (3 Castan, 7th Ed., p. 252.)

Question 30

Distinguish the difference between tender of payment and consignation

Answer 30

The two (2) may be distinguished from each other in the following ways:

(1) Tender of payment is the antecedent of consignation; in other words, while the first is the preparatory act, the second is the principal act which will produce the effects of payment.
(2) Tender of payment is by its very nature extrajudicial in character, while consignation is judicial.

Question 31

What are the special requisites of consignation?

Answer 31

The debtor must show:
(1) That there is a debt due;
(2) That the consignation has been made either because the creditor to whom tender of payment was made refused to accept the payment without just cause, or because any of the cause stated by
law for effective consignation without previous tender of payment exists;
(3) That previous notice of the consignation had been given to the persons interested in the fulfillment of the obligation;
(4) That the thing or amount due had been placed at the disposal of judicial authority; and
(5) That after the consignation had been made, the persons interested in the fulfillment of the obligation had been notified thereof. (Art. 1256 and Art. 1258, par. 2, NCC.)

Question 32

In order for tender of payment to extinguish an obligation, is consignation necessary?

Answer 32

Where the creditor accepts the debtor’s payment, there is no need for consideration. Where the creditor, however, refuses to accept the debtor/s payment without just cause, consignation is necessary.

Question 33

What is the reason for consignation?

Answer 33

The reason for consignation is to avoid the performance of an obligation from becoming more onerous to the debtor by reason of causes not imputable to him. (Eternal Gardens Memorial Park Corp. vs. CA, 282 SCRA 554; Jespayo Realty Corp. vs. CA, G.R. No. 113626, September 27,2002.)

Question 34

Lessors contended that lessees should be ejected for non-payment of new rental rates. The latter contended that they did not agree to the new rates. Thus, the lessees offered payment based on the old rates. The lessors refused to accept their payments. Is non-payment of rentals justified by the lessor’s refusal to accept their payments?

Answer 34

Non-payment of rentals cannot be justified by the lessor’s refusal to accept their payments. The NCC provides that if the creditor to whom tender of payment has been made refuses without justifiable cause to accept it, the debtor shall be released from the responsibility by the consignation of the thing or sum. In the case herein, what the lessee should have done is to deposit the payment of rent based on the previous rate in the bank or with judicial authority. (Art. 1256, NCC.)

Question 35

What are the exceptions to the rule that before consignation shall produce the effects of payment, it is essential that there must be a previous tender of payment?

Answer 35

(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the right to collect; and
(5) When the title of the obligation has been lost. (Art. 1256,NCC.)