The document discusses the rules around valid payments to creditors or third parties. It states that payment is valid if made to the creditor, their successor, or authorized person. Payment to an incapacitated person is valid if they kept or benefited from the payment. Payment to a third party is also valid if it benefited the creditor, such as if the third party later acquires the debt or the creditor ratifies the payment.

2. 2. If made with the knowledge of the debtor. – The payer shall have
the rights of reimbursement and subrogation, that is, to recover
what he has paid (not necessarily the amount of the debt) and to
acquire all the rights of the creditor. (Arts. 1236, par. 2; 1237,
1302,1303. )
Examples:
D owes C the sum of P1,000.00. If S, a stranger to the obligation,
offers to pay C, the latter may or may not accept the offer
payment. Suppose C accepts, the right of S to recover from D
depends upon whether the payment is with or without the
knowledge or consent of D.
1. Without the knowledge or against the will of D. – If the
actual indebtedness is P1,000.00 and S paid P1,000.00, he can
ask reimbursement for P1,000.00 but if P400.00 has already
been paid by D, then S is entitled to be reimbursed only for the
amount of P600.00 because it is only to that amount that D has
been benefited. S can recover P400.00 from C who should not
have accepted it.
If C acted in bad faith, he is liable also for interest in leiu of
damages.

3. 2. With the knowledge of D. – In either case, if
the payment of P1,000.00 was made with the
knowledge or consent of D, S can recover from
D P1,000.00 with all the rights of subrogation
to the accessory obligations such as mortgage,
guaranty, or penalty. (Art.1237.)

4. ART. 1237.
Whoever pays on behalf of the debtor without
the knowledge or against the will or the latter
cannot compel the creditor to subrogate him
in his rights, such as those arising from a
mortgage, guaranty, or penalty.(1159a)

5. Right of third person to subrogation
Whoever pays on behalf of the debtor is
entitle to subrogation if the payment is with the
consent of the latter.(Art. 1237, 1302[2].) if the
payment is without the knowledge are against
the will of the debtor, the third person cannot
compel the creditor to subrogate him in the
latter’s accessory right of mortgage, guaranty, or
penalty.
Legal subrogation by operation of law is
presumed in certain cases. (see Art. 1302.)

6. ART. 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. (n)

7. Payment by a third person who does
not intend to be reimbursed
Article 1238 “embodies the idea that no one should be compelled to
accept the generosity of another.” (Report of the Code Commission, p.
132.) If the paying third person does not intend to be reimbursed, the
payment is deemed a donation which requires the debtor’s consent to be
valid. (see Art. 725.)
However, if the creditor accepts the payment, its shall be valid as to
him and the payor although the debtor did not give his consent to the
donation.
EXAMPLE:
D owes C P1,000.00. Without the intention of being reimbursed, S
paid D’s obligation. D had previously accepted S’s generosity.
In the case, D is not liable to S and his obligation is extinguished. But
if D did not consent to the donation, S may recover from D since there has
been no donation, although originally S did not intend to be reimbursed.
Nevertheless, the obligation of D to C is extinguished because the
payment is valid as to C who has accepted it.

8. ART. 123.
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.” (1160a)

9. Meaning of “free disposal of thing
due” and “capacity to alienate.”
1. Free disposal of the thing due means that the
thing to be delivered must not be subject to
any claim or lien or encumbrance(e.g.,
mortgage, pledge) of a third person.
2. Capacity to alienate means that the person is
not incapacitated to enter into contracts (Arts.
1327,1329.) and for that matter, to make a
disposition of the thing due.

10. Free disposal of thing due and capacity
to alienate required.
As 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.
The exception is provided in Article 1427. The creditor cannot be
compelled to accept payment where the person paying has no capacity
to make it.
Examples:
1. S agreed to sell to B a television set. If the television delivered to B by S belongs
to C, the same can be recovered by C because the payment is not valid. S does not
have free disposal of the television set.
The same right of recovery exists although the television set belongs to S if
he is a minor and, therefore, has no capacity to alienate it.
2. Under Article 1427, if S is a minor between 18 and 21 years, and he voluntarily
pays a sum of money or delivers a fungible thing (like rice) to B in fulfillment of his
obligation, there shall be no right to recover the same from B in case the latter has
spent or consumed it in good faith.

11. ART. 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. (1162a)

12. Person to whom payment shall be
made.
Payment shall be made to:
1. The creditor or obligee (person in whose favor obligation has been
constituted);
2. His successor in interest (like an heir or assignee); or
3. Any person authorized to receive it.
The creditor referred to must be the creditor at the time the payment
is to be made, not at the constitution of the obligation. Hence, if a
person is subrogated to the right of the creditor, payment should be
made to the new creditor.
Example:
D owes C P1,000.00. In this case, D must pay C or any person authorized by C or in
case of his death, his heirs or any person authorized by law. Payment to any other
person is not valid except as provided in Article 1241, paragraph 2.
That D acted in good faith in paying to the wrong party is not an excuse.

13. Meaning of “any person authorized to receive it.”
As used in Article 1240, it means not only person
authorized by the creditor, but also a person
authorized by law to receive the payment, such s
guardian, executor or administrator of the estate of a
deceased, and assignee or liquidator of a partnership
or corporation as well as any other person who maybe
authorized to do so by law. (Haw Pia vs. China Banking
Corporation, 80 Phil. 604.)
Under Article 1242, payment in good faith to any person
in possession of the credit is valid although such
person may not be authorized to receive the payment.

14. ART. 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 case:`
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)

15. Effect of payment to an incapacitated
person.
Payment to a person incapacitated to administer or
manage his property is not valid unless such
incapacitated person kept the thing paid or
delivered (so that it is not necessary that it should
have been invested in some profitable venture),
or was benefited by the payment.
In the absence of this benefit, the debtor may be
made to pay again by the creditor’s guardian or
by the incapacitated person himself