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Barons Marketing Corp. vs. Court of Appeals

PDP, appointed BMC as one of the dealers of
electrical wires and cables
BMC was given by PDP 60 days credit reckoned
from the date of delivery by PDP
PDP wrote BMC demanding payments
PDP rejected BMCs offer to pay its outstanding
account in monthly installments
demand for the full payment of defendants
PDP filed a complaint, Petitioner in its suffered
injury to its reputation due to latters acts.
Constituted an abuse of rights.
W/N PDP is guilty of abuse of right.
Limitation of abuse of right. creditor cannot be
compelled to accept partial performance
does not incur in delay or mora accipiendi, except
when there is abuse of right or if good faith
requires acceptance.
primordial limitation on all rights
Petitioner invokes Article 19 private respondent
abused its rights when it rejected petitioners
offer of settlement
Test of Abuse of Right. it is exercised for the only
purpose of prejudicing or injuring another
objective of the actor is illegitimate
The exercise of a right must be in accordance with
the purpose for which it was established
Good faith presumed. burden of proving bad
faith rests upon the party alleging the same.
Rejection of offer based on very legitimate
reasons. As pointed out by private respondent,
the corporation had its own cash position to
protect in order for it to pay its own obligations.
Mere exercise of rights, not an abuse thereof.
Petitioner not entitled to moral and exemplary
private respondents acts did not transgress the
provisions of Article 21, petitioner cannot be
entitled to moral damages, petitioner must show
that he is entitled
to moral, temperate or compensatory damages
before the court may consider award of
exemplary damages
Contract has force of law. petitioners contract
with private respondent has the force of law
between them.
Partial performance of obligation not allowed.
principle of autonomy of contracts must be
Art. 1249. The payment of debts in money
shall be made in the currency stipulated,
and if it is not possible to deliver such
currency, then in the currency which is legal
tender in the Philippines.

The delivery of promissory notes payable to

order, or bills of exchange or other
mercantile documents shall produce the
effect of payment only when they have been
cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from
the original obligation shall be held in the
abeyance. (1170)
- Not applicable where the contract is to pay in
Philippine currency
- Article 1249 refers to different legal tender or
legally current in the Philippines.
- First paragraph modified by RA 529 law requires
the payment of domestic obligations in money in
Philippine currency and declares as against
public policy, and null and void, and of no effect
any provision in a contract or agreement
requiring the payment of such obligations in a
currency other than Philippine currency. The
obligation void.
- shall be discharged upon payment in any coin or
currency which at the time of payment is legal
tender for public and private debts
- Note: R.A. No. 529 was repealed by R.A. No. 8183,
- no longer any legal impediment as long as the
parties agree to such arrangement.
- Legal tender is that currency which a debtor can
legally compel a creditor to accept in payment of
a debt in money when tendered by the debtor in
the right amount.
- Legal tender in the Philippines - issued by the
Bangko Sentral, BSP Circular No. 537 (July 18,
2006) maximum amount of coins (1) P1,000.00
for denominations P1.00, P5.00, and P10.00
coins, and (2) P100.00 for denominations of P.01,
P.05, P.10 and P.25 coins.
- Payment by means of instruments of credits.
- Right of creditor to refuse or accept. Promissory
notes, checks, bills of exchange and other
commercial documents are not legal tender,
cannot be compelled to be accepted even
though the check is certified or is a managers
- The creditor, if he chooses, may accept them,
without the acceptance producing the effect of
- demandability of the original obligation is
suspended until the payment by the commercial
document is actually realized.
- must cash the instrument, dishonored, can bring
an action for non-payment
- Article 1245, are applicable for payment of a
judgment obligation
- Payment for purpose of redemption. not
rendered invalid, redemption is effected by
- means of a check

- Article 1249 - mode of extinction of debts, while

the right to redeem is not an obligation but the
exercise of a right; nor is it intended to discharge
a pre-existing debt.
- Effect on obligation. Payment by means of
mercantile documents does not extinguish the
- 1) until they have been cashed
- 2) impaired through the fault of the creditor.
- In the first case, executed by the debtor himself or
by a third person.
- The second, executed by a third person.
- Applicability of impairment clause of Article 1249.
- 1. Instruments executed by third persons, himself
- 2. Only to instruments executed by third persons,
only to the first class of instruments, executed
by third persons and delivered by the debtor to
- Duty of payee accepting a check due diligence
in presenting it for payment.
Quiros vs. Tan Guinlay
- S sold goods to B for 2200, B give bill of exchange
(D payee, E drawee and C payor) to S. D
endorsed to E contested it as forged but S did
not protest, hence a valid payment.
Is B liable for the full value of the goods sold?
- No. delivered by the debtor to the creditor and the
- refused to make payment and the creditor
neglected to have the bill protested for nonpayment as required by law, the delivery of the
bill operates as a valid payment and he must
suffer the loss

National Marketing Corp. vs. Federation of

United Namarco Distributors
N sold merchandise to F in cash basis secured by
3 letter of credit, letters should be accepted by F.
N did not present to F for acceptance. F
contended that he has already paid the letters.
Did the delivery of the domestic letters of credit to
N operate to discharge the debt of F?
No. Ns action is not based on the letters of credit
but on its legal right to the cost of the goods
Letters are mere guarantee
Not even pretended that the negotiable character
of the sight draft was impaired as a result of the
fault of N.
no agreement that they should be accepted as
A mere attempt to collect or enforce a bill not
appropriation of it as to discharge the debt

Gutierrez vs. Carpio

- B told S, etc. that he (B) would accept the
repurchase by S, etc., of a certain land by check
and that by reason of such repurchase, S, etc.,
could return to their home. The following day S,
etc., offered payment by check.
Has B the right to refuse to accept such payment?
- No. B is guilty of estoppel because he induced S,
etc., to act upon the belief that he had
consented to said manner of
- Payment

Papa vs. A.U. Valencia and Co., Inc

MP sold to FP land, paying cash and check. No
evidence MP encashed the check
MP contends payment by checks shall produce the
effect of payment only when they have been
cashed, he never cashed said check; delivery not
a payment.
Was there a consummation of the sale of the
subject property?
Yes. Presumption is that check had been cashed
Petitioners fault resulted in the impairment of
check. through his unreasonable and
unexplained delay.
The acceptance of a check implies an undertaking
of due diligence in presenting it for payment,
sustains loss by want of such diligence, it will be
held to operate as actual payment of the debt
no presentment drawer cannot be held liable
Art. 1250. In case an extraordinary inflation
or deflation of the currency stipulated
should supervene, the value of the currency
at the time of the establishment of the
obligation shall be the basis of payment,
unless there is an agreement to the
contrary. (n)

- Inflation is a sharp sudden increase of money or

credit or both without a corresponding increase
in business transactions, causes a drop in the
value of money, resulting in rise of the general
price level, an increase in the volume of money,
rise in the general price level. (Huibonhoa vs.
Court of
- Deflation is the reduction in volume and
circulation of the
- available money or credit, resulting in a decline of
the general price level
- Requisites for application of Article 1250.

- 1) official declaration of extraordinary inflation or

deflation from the Bangko Sentral ng Pilipinas
- 2) obligation is contractual in nature;
- 3) The parties expressly agreed to consider the
effects of the extraordinary inflation or deflation.
- A contractual agreement is needed for the effects
of extraordinary inflation/deflation
- Contractual obligations where currency is selected
by parties, applicable only to cases where
contract or agreement is involved
- No contractual obligation, article does not apply,
taking of private property by the government via
eminent domain does not give rise to contractual
- Basis of payment in case of extraordinary inflation
or deflation - purchasing value of the currency at
the time
- of the establishment of the obligation shall be the
basis of payment,
- Burden of proving upon the party that alleges it.

Pan American World Airways vs. PAA

Employees Association
CBA to increase rates by Pan Am if theres a law
diminishing the value of peso
No law had been passed
CB fixed the rate to 3 is to 1
W/N fixing of CB amounted to diminishing the
value of peso
Yes. The purchasing power or value of money or
currency does not depend upon or brought about
by a law
If by law or treaty the rate be fixed, such law or
treaty could not give the money or currency the
Government to pay or supply the difference
between the value fixed and the real value by
drawing upon its international reserves.
should a law be passed diminishing the value of
the currency, they did not literally mean a law
enacted by Congress which, would not really
diminish the purchasing power but would just
confirm the real value or actual purchasing
power of the currency.
When inflation or deflation extraordinary never
Meaning not specifically defined - fire, war,
pestilence, unusual fl ood, locusts, earthquake,
or others which are uncommon, could not have
reasonably foreseen
Suggested test - one that neither party had
reason to
foresee when the obligation was established or
manifestly beyond the contemplation of the

Telengtan Brothers & Sons, Inc. vs. United

Line, Inc
Respondent violated its contractual obligation to
delivery within the 10-day period free demurrage
which led to depositing the same in bonded
The trial court found petitioner liable for
demurrage incurred recomputed as of the date
of payment
respondent urged of the succeeding devaluations
of the peso, the computation of the amount thus
due from the petitioner should factor in such
peso devaluations.
recomputed the judgment award as of the date of
When extraordinary infl ation or defl ation exists.
unusual increase or decrease in the purchasing
power, beyond common fluctuation and could
not have been reasonably foreseen or was
manifestly beyond the contemplation of the
parties at the time of the establishment of the
The Court holds no extraordinary inflation no
plausible reason for ordering the payment in an
amount different from what has been agreed
Occurrence of extraordinary inflation has not been
proved - Even if the price index of goods and
services may have risen, increase cannot
considered extraordinary, such downward trend
in peso not an extraordinary phenomenon,
absent official pronouncement by competent
Agreement needed for effects of extraordinary
inflation to be taken into account. - It is only
when there is a contrary agreement that
extraordinary inflation will make the value of the
currency at the time of payment, not at the time
of the establishment of obligation
agreement is needed for the effects of an
extraordinary inflation to be taken into account
to alter the value of the currency at the time of
the establishment of the obligation, always the
determinative element
Order for recomputation as of the date of payment
is deleted.
Devaluation and depreciation distinguished Devaluation involves an official reduction in the
value of one currency from an officially fixed
Depreciation, on the other hand, refers to the
downward change in the value of one currency in
terms of the currencies of other nations which
occurs as a result of market forces in the foreign
exchange market.

- Philippines - floating foreign exchange

rate - while domicile (or legal residence) requires bodily
system (depreciation) and not an officially fixed
presence in that place and also an intention to
rate regime (devaluation)
make it ones domicile.

Del Rosario vs. Shell

Art. 1252. He who has various debts of the
same kind in favor of one and the same
R and E entered into lease agreement with
creditor, may declare at the time of making
stipulation regarding devaluation/appreciation
the payment, to which of them the same
President promulgated Executive Order No. 195
must be applied. Unless the parties so
which changed the par value of peso from U.S.
stipulate, or when the application of
$0.50 to U.S.
payment is made by the party for whose
benefit the term has been constituted,
application shall not be made as to debts
justify the proportionate increase of rent?
which are not yet due.
If the debtor accepts from the creditor a
Yes. Situation or event contemplated by the
receipt in which an application of the
parties in their contract. Devaluation is an official
payment is made, the former cannot
act of the government and refers to a reduction
complain of the same, unless there is a
of the metallic content.
cause for invalidating the contract. (1172a)
Even assuming that there has been no official, - Application of payments is the designation of the
there has been a diminution or lessening in the
debt to which should be applied the payment
purchasing power of the peso; thus, there has
made by a debtor who has various debts of the
been a depreciation
same kind in favor of one and the same creditor.
Moreover, when laymen unskilled in the semantics - Requisites of application of payments.
of economics, devaluation may be regarded as
1. one debtor and one creditor;
synonyms with depreciation for certainly both
2. two or more debts;
refer to decrease in the value of currency
3. The debts must be of the same kind;
4. Debts must be due
Art. 1251. Payment shall be made in the
5. The payment made must not be sufficient
place designated in the obligation.
to cover all the debts.
There being no express stipulation and if the - Application as to debts not yet due - cannot be
undertaking is to deliver a determinate
made unless:
thing, the payment shall be made wherever
1. there is a stipulation for application
the thing might be at the moment the
2. it is made by the debtor or creditor, for
obligation was constituted.
whose benefit the period has been
In any other case the place of payment shall
be the domicile of the debtor.
- Rules on application of payments.
If the debtor changes his domicile in bad - debtor has the first choice; he must indicate at the
faith or after he has incurred in delay, the
time of making payment, and not afterwards,
additional expenses shall be borne by him.
which particular debt is being paid.
These provisions are without prejudice to - The right once exercised is irrevocable unless the
venue under the Rules of Court. (1171a)
creditor consents to the change. The acceptance
If there is a stipulation place designated
by D of the receipt given by C is regarded by the
no stipulation at the place where the thing was, at
law as contract in itself independent of the
the perfection of the contract
principal obligation
no stipulation, to be delivered is generic, domicile - debtors right to apply payment is not mandatory
of the debtor. Creditor bears the expenses in
but merely directory. If the debtor does not
going to the debtors place to accept payment
apply payment, the creditor has the subsidiary
above enumerated is successive and exclusive
right to make the designation by specifying in
Venue is the place where a court suit or action
the receipt which debt is being paid;
must be filed or instituted
- If the creditor has not also made the application,
term domicile, as used in Article 1251, connotes
the debt, which is most onerous to the debtor
actual or physical habitation of a person as
among those due, shall be deemed to have been
distinguished from legal residence.
Domicile is the place of a persons habitual - No receipt proportionate, receipt to partner
proportionate except when personal debt is
Residence is only an element of domicile.
more onerous to the debtor it is full credit
Residence simply requires bodily presence
Magdalena Estates, Inc. vs. Rodriguez

- D issued promissory note to C of 5000 with

interest. S is the surety, S paid C only 5000. D
tried to recover the interest.
Did C waive his right to the interest when he
accepted only P5,000.00 from S?
- No. The liability of S is limited to P5,000.00. No
waiver or condonation of the interest due.
- D is relying on Article 1253, but Articles 1252 to
1254 apply to a person owing several debts of
the same kind to a single creditor. They cannot
be made applicable to a surety both contingent
and singular; liability is confined to such

Art. 1253. If the debt produces interest,

payment of the principal shall not be
deemed to have been made until the
interests have been covered. (1173)
Mandatory rule - the debtor cannot choose to
credit his payment to the principal before the
interest is paid.
The rule is subject to waiver - , however, to any
agreement between the parties, here Article
1253 is merely directory.
duty of the creditor to inform the debtor of the
amount of interest that falls due and that he is
applying the installment payments to cover said
Art 1176 shall not be prejudiced.

- Debts secured by a mortgage or by pledge are

more onerous than unsecured debts
- unpaid rentals due from the purchaser of property
occupied by him more onerous than the balance
of the price of the property
- one with a higher rate is more onerous.
- An obligation with a penalty clause is more
burdensome than one without penalty clause.

Reparation Commission vs Universal Deep

B entered into conditional purchase of 6 trawl boat
from S. C secured by a bond
In a suit filed by S against B and C for failure of B
to pay the amortizations, the lower court
rendered a decision in favor of S.
C contended, that the court had erred in not
applying the sum of P10,000.00 paid as down
payment on two (2) boats by B to S to the
guaranteed indebtedness, reasoning that under
Article 1254
hence, the amount paid as down payment on its
two (2) boats should be applied to the
guaranteed portion of the debt.
Is this contention tenable?
No. The rules contained in Articles 1252 to 1254
of the Civil Code apply to a person owing several
debts of the same kind to a single creditor. Not
be a mere surety
Where debts subject to different burdens, that it
cannot be definitely determined which debt is
most onerous, to all of them proportionately.

Art. 1254. When the payment cannot be

applied in accordance with the preceding
rules, or if application can not be inferred
from other circumstances, the debt which is
SUBSECTION 2. Payment by Cession
most onerous to the debtor, among those
due, shall be deemed to have been satisfied.
Art. 1255. The debtor may cede or assign his
If the debts due are of the same nature and
property to his creditors in payment of his
burden, the payment shall be applied to all
debts. This cession, unless there is
of them proportionately. (1174a)
stipulation to the contrary, shall only release
Application of payment to more onerous debts or
the debtor from responsibility for the net
to all debts proportionately
proceeds of the thing assigned. The
A debt is more onerous than another when more
agreements which, on the effect of the
cession, are made between the debtor and
No fixed rule since condition of being more
his creditors shall be governed by special
laws. (1175a)
- Payment by cession is another special form of
An interest-bearing debt is more onerous than a
payment. It is the assignment or abandonment
non-interest bearing debt even if the latter is an
of all the properties of the debtor for the benefi t
older one.
of his creditors in order that the latter may sell
A debt as a sole debtor is more onerous than as a
the same and apply the proceeds thereof to the
satisfaction of their credits
- Requisites of payment by cession.
Bond the debtor and surety have bound
1. There must be two or more creditors;
themselves solidarily, partly secured, applied
2. The debtor must be (partially) insolvent;
first to the unsecured portion of the debt, for, as
3. The assignment must involve all the
regards the principal debtor, the obligation is
properties of the debtor;
more onerous as to the amount not secured.
4. The cession must be accepted by the
older debts are more onerous.

- Effect of payment by cession

(2) When he is incapacitated to receive
1. does not make the creditors the owners of
the payment at the time it is due;
the property of
(3) When, without just cause, he refuses
2. the debtor and the debtor is released from
to give a receipt;
his obligation only up to the net proceeds
(4) When two or more persons claim the
of the sale
same right to collect;
3. still liable if there is a balance.
(5) When the title of the obligation has
- Article 1255 refers to contractual assignment been lost. (1176a)
which requires the consent of all the creditors as - Tender of payment is the act, on the part of the
distinguished from legal or judicial assignment
debtor, of offering to the creditor the thing or
- It merely
amount due. Act preparatory to consignation
- involves a change of the object by agreement of - Consignation is the act of depositing the thing or
amount due with the proper court when the
- Dation in payment or dacion en pago is a special
creditor does not desire, or refuses to accept
form of payment whereby another thing is
payment, or cannot receive it, after complying
alienated by the debtor to the creditor who
with the formalities required by law. It is always
accepts it as equivalent of payment of an
judicial and it generally requires a prior tender of
existing debt in money.
payment which is by its very nature
- Requisites are:
1. Existence of a money obligation
- Nature of and rationale for consignation.
2. Transfer of ownership of thing by debtor to
1. facultative remedy. debtor may or may
the creditor with consent of the latter
not avail of. Law allows the debtor to
3. Satisfaction of money obligation
withdraw the thing, deposited before
- The differences between Dation in payment and
acceptance by the creditor or cancellation
cession are:
by the court. Debtor has right to refuse to
1. In dation only one creditor, while in
make the deposit, court cannot compel,
cession, there are several creditors;
the action is left to the creditor.
2. Dation does not presuppose the insolvency
2. Avoidance of greater liability. produces
of the debtor, while in cession, the debtor
the effect of payment and extinguishes an
is insolvent at the time of assignment;
obligation. For failure to consign, the
3. Dation does not involve all the property of
debtor may become liable for damages
the debtor, while cession extends to all the
and/or interest. But such failure is not
property of the debtor subject to
tantamount to a breach of contract where
by the fact of tendering payment he was
4. In dation, the creditor becomes the owner,
willing and able to comply with his
while in cession, the creditors only acquire
obligation. Good faith of the offeror or
the right to sell the thing and apply the
ability to make good the offer should in
proceeds to their credits pro rata; and
simple justice excuse the debtor from
5. Dation is really an act of novation while
paying interest after the offer was rejected.
cession is not
Technical defects of the offer cannot be
6. Both are substitute forms of payment or
adduced to destroy its effects, although
performance governed by law on sales.
the defective consignation made by the
- Creditor may stipulate debtor being still liable for
debtor did not discharge the mortgage
the balance if the value is less creditor
debt, the running of interest on the loan is
becoming the debtor for the excess if the value
suspended by the offer and tender of
is more
- Requisites of a valid consignation.
SUBSECTION 3. - Tender of Payment and
1. Existence of a valid debt which is due.
Creditor-debtor relationship must exist
2. tender of payment by the debtor and
Art. 1256. If the creditor to whom tender of
refusal without justifiable reason by the
payment has been made refuses without
creditor to accept it Both tender and
just cause to accept it, the debtor shall be
consignation without encumbrances of
conditions are essential to effect the
consignation of the thing or sum due.
extinguishment of debt.
Consignation alone shall produce the same
3. previous notice of consignation to persons
effect in the following cases:
interested in the fulfillment of the
(1) When the creditor is absent or
unknown, or does not appear at the place
4. consignation of the thing or sum due
of payment;

5. subsequent notice of consignation made to

the interested parties.
Absence of any of the requisites is enough ground
to render consignation ineffective
Applicable to both real and personal
Law may sanction another method of payment
such as depositing the amount to a bank as an
alternative judicial consignation
Requisites of valid tender of payment
1. Tender of payment must comply with the
rules on payment tender does not by
itself produce legal payment unless it is
completed by a consignation
2. It must be unconditional and for the whole
3. It
manifestation of a desire or intention to
pay is not enough. Cannot be presumed
mere inference such as sufficiency of
available funds in the hands of creditor
PNB vs Relativo
D issued promissory note to C. D claimed the loan
has been paid by tendering payment at Cs
Naga agency but cashed by Legaspi
Issue: W/N valid tender to discharge obligation
No. D undertook to pay Phil Currency. Tender of
payment was made in check and not his own.
tender of payment, even if valid, does not by
itself produce legal payment, unless it is
completed by consignation
Proof of tender of payment
Tender proved by debtor
When tender not required prior noticed to
interested persons of consignation need to
be proved
Letter of tenant to get the rental for
particular month no proof of tender
payment of other subsequent rentals.
Letter to withdraw from the court the
rental for a particular month no proof of
any other deposit nor tender of payment
When tender not required
Without legal justification creditor waives
payment on the date when payment will be
due. A debtor does not incur default by
failing to make a fruitless tender after
notification from the creditor that the
money will not be received.
mortgagee (bank) had long foreclosed the
mortgage extrajudicially, mortgagee had
not made any claim of such deposit.
useless for her to make previous offer and
tender of payment directly to the

must first be announced to the persons

The consignation shall be ineffectual if it is
not made strictly in consonance with the
provisions which regulate payment. (1177)
Prior notice to persons interested required in
absence of prior notice to guarantors,
mortgagers, etc. , void
purpose of the notice is to give the creditor a
chance to reflect on his previous refusal to
accept payment considering that the expenses
of consignation shall be charged against him
(Art. 1259.) and that in case of loss of the thing
consigned, he shall bear the risk thereof.
Notice not a mere warning but should fix the date
and hour of the consignation and the name of
the court where the same would be made
Tender of payment and notice of consignation may
be done in the same act
Consignation must comply with provisions on
payment payment must be legal tender
approval of the court or the obligees acceptance
of the deposit is not necessary where the obligor
has performed all acts necessary to a valid
consignation, true only where there is
unmistakable evidence on record that the
prerequisites of a valid consignation are present
Tender not a contractual debt art 1256 and 1257
not applicable
In case of a refusal of tender of payment of a
judgment, the court may direct the money to be
paid into court, and after this payment is done,
order satisfaction of the judgment to be entered

Art. 1258. Consignation shall be made by

depositing the things due at the disposal of
judicial authority, before whom the tender of
payment shall be proved, in a proper case,
and the announcement of the consignation
in other cases.
The consignation having been made, the
interested parties shall also be notified
thereof. (1178)
- Where an obligor, however, fails to make a
consignation after a valid tender of payment,
the court may allow him time to pay the
obligation without rescinding the contract,
purchaser cannot be blamed for her failure to
consign the amount due where inspite of her
willingness to make payment of the residual
amount seller injustifi ably refused to accept the
tender ofpayment
- Judgment in an Ejectment case had already
becomes final, remanded to lower court, CA no
longer the proper entity to which consignation of
rents be made.
- Consignation has retroactive effect. payment is
deemed to have been made at the time of the
Art. 1257. In order that the consignation of
deposit of the thing in court or when it was
the thing due may release the obligor, it

placed at the disposal of the judicial authority.

Rationale is avoid making the performance of an
obligation more enerous to the debtor by reason
of causes not imputable him
Notice to be given to interested parties of
consignation made - service of summons upon
the defendants together with a copy of the
complaint. purpose of the second notice is to
enable the creditor to withdraw the thing or sum
deposited or take possession in case he accepts
the consignation.
Consignation applicable only to payment debt not applicable where there is no obligation to
sufficient) in case where a privilege or right
exists such as:
a. mortgage debtor desires to redeem
b. vendor a retro who wants to repurchase
c. lessee who wants to buy and exercise right
of option
right to redeem is excused thru the filing of a
judicial action within the period prescribed for
redemption, such filing is equivalent to a formal
offer to redeem.
But where the effect of judgment is to definitely
settle by judicial declaration the respective
rights of parties, as that of debtor-creditor,
vendor (debtor) must consign the full amount of
the repurchase price if the vendee (creditor)
refuses to allow the redemption.
Property deposited with the court exempt from
attachment - in custodia legis and cannot be
withdrawn without an express order of the court
even if the fact that no subsequent notice of
consignation is made is of no moment. It does
not mean, however, that the debtor shall be
released from his liability

Before the creditor has accepted the

consignation, or before a judicial declaration
that the consignation has been properly
made, the debtor may withdraw the thing or
the sum deposited, allowing the obligation
to remain in force. (1180)
Withdrawal by debtor of thing or sum deposited
may be made (1) before the creditor has
accepted the consignation or (2) before a
judicial declaration expenses born by him
If the withdrawal is with the consent of the
creditor, Article 1261 applies
Need for a judicial order of restitution even if court
to allow withdrawal before acceptance by the
creditor or judicial approval
Risk of loss of the thing consigned:
o For account of creditor loss without fault of
consignation or its approval by the court,
charged to creditor
o For account of debtor risk of loss before
acceptance by creditor or approval of court
is mutual, charged to debtor.

Art. 1261. If, the consignation having been

made, the creditor should authorize the
debtor to withdraw the same, he shall lose
every preference which he may have over
the thing. The co-debtors, guarantors and
sureties shall be released. (1181a)
- Effect of withdrawal with authority of creditor if
authorize the debtor to withdraw after he has
accepted the same or after the court ordered
cancelled. As far as debtor or creditor, relations
will remain, creditor shall lose every preference
and co-debtors, guarantors and sureties shall be
- Solidary debtors are released only from their
solidary liability but not from their shares of
Art. 1259. The expenses of consignation,
when properly made, shall be charged
against the creditor. (1178)
SECTION 2. - Loss of the Thing Due
When consignation deemed properly made
When the creditor accepts the thing or sum
Art. 1262. An obligation which consists in
deposited, without objection, as payment of the
the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed
When the creditor questions the validity declares
without the fault of the debtor, and before
that it has been properly made
he has incurred in delay.
creditor neither accepts nor questions the court
When by law or stipulation, the obligor is
ordering the cancellation of obligation. Deposit
liable even for fortuitous events, the loss of
of redemption money with sheriff is sufficient to
the thing does not extinguish the obligation,
effect payment of redemption price not
and he shall be responsible for damages.
necessary followed by consignation.
The same rule applies when the nature of
But mere tender of payment is not itself a
the obligation requires the assumption of
payment that relieves the vendor or mortgagor
risk. (1182a)
from his liability to pay the redemption price
- the thing is lost when it perishes, or goes out of
commerce or disappears in such a way that its
Art. 1260. Once the consignation has been
existence is unknown or it cannot be recovered.
duly made, the debtor may ask the judge to
(extends to both real and personal obligation)
order the cancellation of the obligation.

- When loss of thing will extinguish an obligation to

1. The obligation is to deliver a specific or
determinate thing;
2. The loss of the thing occurs without the
fault of the debtor;
3. The debtor is not guilty of delay.
- When loss of thing will not extinguish liability
1. when the law so provides
2. when the stipulation so provides;
3. when the nature of the obligation requires
the assumption of risk
4. when the obligation to deliver a specific
thing arises from a crime.

- Establishes disputable presumption of fault,

reasonable because debtor who has custody and
care of the thing can easily explain the
circumstances of the loss.
- Creditor no duty to show that debtor was at fault
- Presumption not applicable in case of natural

Art. 1263. In an obligation to deliver a

generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation. (n)
- generic
nunquam perit)
- debtor can still be compelled to deliver a
thing of the same kind not superior or

Art. 1266. The debtor in obligations to do

shall also be released when the prestation
becomes legally or physically impossible
without the fault of the obligor. (1184a)
Exception to obligatory force of contract without
obligors fault
Impossible performance will result to extinction of
debtors obligation
Impossibility must take place after the constitution
of the obligation void
Kinds of impossibility:
1. purely personal obligations, when the
personal qualifications of the obligor are
involved, physical impossibility takes place
when, for example, the obligor dies
2. Legal impossibility occurs when the
obligation cannot be performed because it
is rendered impossible by provision of law,
although physically it may be possible of

Republic vs Grijaldo
- D obtained loans from C secured by a chattel
mortgage on the standing crops of the land
owned by him. These crops were lost or
Millan vs Rio Olabarrieta
destroyed through enemy action during the war.
Issue: Is Ds obligation to pay the loans - S sold to B an undivided interest in vessel for 36K.
10K was paid, 26K to be applied to installing
new engine. Vessel wrecked by a storm
- Held: No D is not to deliver a determinate thing,
namely, the crops but to pay a generic thing
W/N B is released
sum of his loans, with interest. Chattel mortgage
is a surety.
- No. The true intention of the parties is that the
unpaid balance should be applied to the
Art. 1264. The courts shall determine
installation there was an obligation on his part
whether, under the circumstances, the
to pay the balance independently of the purpose
partial loss of the object of the obligation is
for which it was intended to be used;
so important as to extinguish the obligation.
Gutierrez Repide vs. Alzelius
- partial loss when only a portion of the thing is lost
or destroyed or when it suffers depreciation or - S sold land to B, B failed to pay the first
deterioration. Partial loss is the equivalent of
installment, B alleged lack of funds for his failure
diffi culty of performance in obligations to do
and pleaded impossibility of performance.
- Example to deliver race horse, but the horse had
broken leg
Is contention tenable?
Art. 1265. Whenever the thing is lost in the - No. stability of commercial transactions requires
possession of the debtor, it shall be
that the rights of the seller be protected just as
presumed that the loss was due to his fault,
effectively as the rights of the buyer.
unless there is proof to the contrary, and - mere pecuniary inability to fulfi ll an engagement
without prejudice to the provisions of article
does not discharge the obligation of the
1165. This presumption does not apply in
contract, nor does it constitute a defense to a
case of earthquake, flood, storm, or other
decree of specific performance.
natural calamity. (1183a)
Labayen vs. Talisay-Silay Milling Co

W/N surety is liable
- S obligated to construct a railroad. It was shown
later that it is still possible was very dangerous. - No. Principal obligation has been extinguished by
the action of the government in preventing such
May one obligate himself to do something too
dangerous to life and property?
- No. Contract was a general contract limited in
particular application not impeded by physical - D corporation agent of N in exporting rice and
corn and in importing certain collateral goods in
- Not to sanction would run counter to public policy
exchange therefore, to buy from N the said
and law
collateral goods.
- Almost half the goods were imported and D paid
Castui vs. Longa
for them. Because of the change of
- E lessee failed to comply with terms of his
contract for the lease due to an order of - D was able to import the remaining collateral
president suspending milling or prohibiting
planting. Fact that E was prevented in doing so
D is liable to N for balance of value
Is E relieved?
- No the obligation of D to import and buy the
- Yes. if we take into account the fact that to
collateral goods became unenforceable when
produce or mill sugar cane at that time was
importation become legally impossible due to
contrary to public policy as it would be giving
suspension of barter
aid and comfort to the enemy
- It was the duty of N to make necessary
representations with the government to enable
Keng Hua Paper Product, Co., Inc. vs. Court
D to import the remaining collateral goods
of Appeals
- N has no cause of action until it has secured the
necessary import permit and it brings the
- KHHP is obliged to receive and discharge the
remaining collateral goods worth
cargo from SLS vessel. Despite notices of arrival,
KHHP failed to discharge the shipment.
Demurrage charges accrued.
- KHPP alleged that it purchased 50 tons of waste - Lessee petitioner argued payment of rental would
paper from the shipper in HK, that SLS is asking
commence on the date of issuance of industrial
KHPP to accept 10 metrics ton more than the
clearance by the the (defunct) Ministry of
remaining balance.
Human Settlements and not from the date of the
- it would be violating Central Bank rules and
signing of the contract
regulations and customs and tariff laws
Has lessee has the right to refuse to pay?
Did KHPP violated the bill of lading?
- Suspensive condition fulfi lled. Petitioner was
- Yes. Petitioner liable for demurrage. Mere
held estopped from claiming that the Temporary
apprehension of violating said laws, without a
Use Permit was not the industrial clearance
clear demonstration that shipment has become
contemplated by the contract
legally impossible, cannot defeat the petitioners - Reason of petitioner was financial as well as
contractual obligation
- Petitioners remedy against seller/shipper
insufficiency of the Temporary Use Permit
discrepancy in the invoice and bill cannot - Article 1266 not applicable contract did not
negate the petitioners obligation.
materialize due to unforeseen events and
- Private respondent, as carrier, had no knowledge
causes beyond its control
of the contents of the container. Petitioner is - fundamental rule that contracts, once perfected,
against shipper not the carrier.
bind both contracting parties,
- law recognizes exceptions, one is Art 1266
McCOnn vs Haragan
- unforeseen event not the legal or physical
impossibilities contemplated in the said article
- Surety issued a bond in case D fails to return in - Parties assumed the risks of unfavorable
the Phil. DFA banned D from returning
- Pecuniary defense not a defense

- Motive or particular purpose of lessee in entering

took the premises, but tendered payment for
into the contract irrelevant - exception is when
period occupied by Japanese
the realization of such motive or particular
purpose has been made a condition upon which
Has R the right (1) to recover the unpaid rent from
the contract is made to depend
January 1942 and (2) to rescind the contract of
- Natural impossibility - nature of the thing to be
done and not in the inability of the party to do
so; it must appear that the thing to be done - 1. Yes. E would be relieved from the obligation to
cannot by any means be accomplished - void
pay rent if the subject matter of the lease
- Impossibility in fact, - in the absence of inherent
disappeared, personal occupation is the
impossibility in the nature of the thing stipulated
foundation of the contract. Mere trespass a
to be performed, which is only improbable or out
casual disturbance and collateral incident.
of the power of the obligor. Valid
- 2. No. Failure to pay rent was due to impossibility
inherent in nature of the thing. Payment of rent
Reyes vs Caltex
was the very foundation, sole consideration for
R. E failed to make good the promise, hence he
- R leased to E corporation 2 parcels of land, seized
had no control and for no fault
by Japanese and the company has closed
throughout the period. After liberation, E again