Barons Marketing Corp. vs. Court of AppealsFacts: 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 account. PDP filed a complaint, Petitioner in its suffered injury to its reputation due to latters acts. Constituted an abuse of rights.Issue: W/N PDP is guilty of abuse of right.Ruling: 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 damages 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 respected.

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 check. The creditor, if he chooses, may accept them, without the acceptance producing the effect of payment. 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 obligation 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 creditor. Duty of payee accepting a check due diligence in presenting it for payment.

Quiros vs. Tan GuinlayFacts: 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. Issue: Is B liable for the full value of the goods sold?Ruling: No. delivered by the debtor to the creditor and the drawee refused to make payment and the creditor neglected to have the bill protested for non-payment 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 DistributorsFacts 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. Issue Did the delivery of the domestic letters of credit to N operate to discharge the debt of F?Ruling: No. Ns action is not based on the letters of credit but on its legal right to the cost of the goods delivered. 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 payment. A mere attempt to collect or enforce a bill not appropriation of it as to discharge the debt

Gutierrez vs. CarpioFacts: 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.Issue: Has B the right to refuse to accept such payment?Ruling: 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., IncFacts: 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.Issue: Was there a consummation of the sale of the subject property?Ruling: 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 (BSP). 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 obligation. 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 AssociationFacts: 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 1Issue: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 purchasing power but would bind 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 assumed 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 parties

Telengtan Brothers & Sons, Inc. vs. United StatesLine, IncFacts: Respondent violated its contractual obligation to delivery within the 10-day period free demurrage which led to depositing the same in bonded warehouse. 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.Issue: recomputed the judgment award as of the date of payment?Ruling: 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 obligation. The Court holds no extraordinary inflation no plausible reason for ordering the payment in an amount different from what has been agreed upon 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 authorities 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 level imposed by monetary authorities. 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 system (depreciation) and not an officially fixed rate regime (devaluation)

Del Rosario vs. ShellFacts: R and E entered into lease agreement with stipulation regarding devaluation/appreciation President promulgated Executive Order No. 195 which changed the par value of peso from U.S. $0.50 to U.S. $0.2564103 Issue: justify the proportionate increase of rent?Ruling: Yes. Situation or event contemplated by the parties in their contract. Devaluation is an official act of the government and refers to a reduction of the metallic content. Even assuming that there has been no official, there has been a diminution or lessening in the purchasing power of the peso; thus, there has been a depreciation Moreover, when laymen unskilled in the semantics of economics, devaluation may be regarded as synonyms with depreciation for certainly both refer to decrease in the value of currency

Art. 1251. Payment shall be made in the place designated in the obligation.There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted.In any other case the place of payment shall be the domicile of the debtor.If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.These provisions are without prejudice to venue under the Rules of Court. (1171a) If there is a stipulation place designated no stipulation at the place where the thing was, at the perfection of the contract no stipulation, to be delivered is generic, domicile of the debtor. Creditor bears the expenses in going to the debtors place to accept payment above enumerated is successive and exclusive Venue is the place where a court suit or action must be filed or instituted term domicile, as used in Article 1251, connotes actual or physical habitation of a person as distinguished from legal residence. Domicile is the place of a persons habitual residence. Residence is only an element of domicile. Residence simply requires bodily presence while domicile (or legal residence) requires bodily presence in that place and also an intention to make it ones domicile.

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a) Application of payments is the designation of the debt to which should be applied the payment made by a debtor who has various debts of the same kind in favor of one and the same creditor. Requisites of application of payments.1. one debtor and one creditor;2. two or more debts;3. The debts must be of the same kind;4. Debts must be due5. The payment made must not be sufficient to cover all the debts. Application as to debts not yet due - cannot be made unless:1. there is a stipulation for application 2. it is made by the debtor or creditor, for whose benefit the period has been constituted. Rules on application of payments. debtor has the first choice; he must indicate at the time of making payment, and not afterwards, which particular debt is being paid. The right once exercised is irrevocable unless the creditor consents to the change. The acceptance by D of the receipt given by C is regarded by the law as contract in itself independent of the principal obligation debtors right to apply payment is not mandatory but merely directory. If the debtor does not apply payment, the creditor has the subsidiary right to make the designation by specifying in the receipt which debt is being paid; If the creditor has not also made the application, the debt, which is most onerous to the debtor among those due, shall be deemed to have been satisfied No receipt proportionate, receipt to partner proportionate except when personal debt is more onerous to the debtor it is full credit

Magdalena Estates, Inc. vs. RodriguezFacts: 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. Issue: Did C waive his right to the interest when he accepted only P5,000.00 from S?Ruling: 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 obligation

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 interest; Art 1176 shall not be prejudiced.

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 most onerous to the debtor, among those due, shall be deemed to have been satisfied.If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a) Application of payment to more onerous debts or to all debts proportionately A debt is more onerous than another when more burdensome No fixed rule since condition of being more burdensome is a question of relative appreciation. An interest-bearing debt is more onerous than a non-interest bearing debt even if the latter is an older one. A debt as a sole debtor is more onerous than as a solidary debtor. Bond the debtor and surety have bound themselves solidarily, partly secured, applied first to the unsecured portion of the debt, for, as regards the principal debtor, the obligation is more onerous as to the amount not secured. older debts are more onerous. 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 DeepFacts: 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.Issue: Is this contention tenable?Ruling: 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.

SUBSECTION 2. Payment by Cession

Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) Payment by cession is another special form of payment. It is the assignment or abandonment of all the properties of the debtor for the benefi t of his creditors in order that the latter may sell the same and apply the proceeds thereof to the satisfaction of their credits Requisites of payment by cession.1. There must be two or more creditors;2. The debtor must be (partially) insolvent;3. The assignment must involve all the properties of the debtor;4. The cession must be accepted by the creditors. Effect of payment by cession 1. does not make the creditors the owners of the property of 2. the debtor and the debtor is released from his obligation only up to the net proceeds of the sale 3. still liable if there is a balance. Article 1255 refers to contractual assignment - which requires the consent of all the creditors as distinguished from legal or judicial assignment It merely involves a change of the object by agreement of parties Dation in payment or dacion en pago is a special form of payment whereby another thing is alienated by the debtor to the creditor who accepts it as equivalent of payment of an existing debt in money. Requisites are:1. Existence of a money obligation2. Transfer of ownership of thing by debtor to the creditor with consent of the latter3. Satisfaction of money obligation The differences between Dation in payment and cession are:1. In dation only one creditor, while in cession, there are several creditors;2. Dation does not presuppose the insolvency of the debtor, while in cession, the debtor is insolvent at the time of assignment;3. Dation does not involve all the property of the debtor, while cession extends to all the property of the debtor subject to execution;4. In dation, the creditor becomes the owner, while in cession, the creditors only acquire the right to sell the thing and apply the proceeds to their credits pro rata; and5. Dation is really an act of novation while cession is not6. Both are substitute forms of payment or performance governed by law on sales. Creditor may stipulate debtor being still liable for the balance if the value is less creditor becoming the debtor for the excess if the value is more

SUBSECTION 3. - Tender of Payment and Consignation

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.Consignation alone shall produce the same effect in the following cases:(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 same right to collect;(5) When the title of the obligation has been lost. (1176a) Tender of payment is the act, on the part of the debtor, of offering to the creditor the thing or amount due. Act preparatory to consignation Consignation is the act of depositing the thing or amount due with the proper court when the creditor does not desire, or refuses to accept payment, or cannot receive it, after complying with the formalities required by law. It is always judicial and it generally requires a prior tender of payment which is by its very nature extrajudicial. Nature of and rationale for consignation.1. facultative remedy. debtor may or may not avail of. Law allows the debtor to withdraw the thing, deposited before acceptance by the creditor or cancellation by the court. Debtor has right to refuse to make the deposit, court cannot compel, the action is left to the creditor. 2. Avoidance of greater liability. produces the effect of payment and extinguishes an obligation. For failure to consign, the debtor may become liable for damages and/or interest. But such failure is not tantamount to a breach of contract where by the fact of tendering payment he was willing and able to comply with his obligation. Good faith of the offeror or ability to make good the offer should in simple justice excuse the debtor from paying interest after the offer was rejected. Technical defects of the offer cannot be adduced to destroy its effects, although the defective consignation made by the debtor did not discharge the mortgage debt, the running of interest on the loan is suspended by the offer and tender of payment. Requisites of a valid consignation.1. Existence of a valid debt which is due. Creditor-debtor relationship must exist2. tender of payment by the debtor and refusal without justifiable reason by the creditor to accept it Both tender and consignation without encumbrances of conditions are essential to effect the extinguishment of debt. 3. previous notice of consignation to persons interested in the fulfillment of the obligation 4. consignation of the thing or sum due 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 payment1. Tender of payment must comply with the rules on payment tender does not by itself produce legal payment unless it is completed by a consignation2. It must be unconditional and for the whole amount3. It must be actually made. The 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 RelativoFacts: D issued promissory note to C. D claimed the loan has been paid by tendering payment at Cs Naga agency but cashed by LegaspiIssue: W/N valid tender to discharge obligationRuling: 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 mortgagee

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.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 deposit of the thing in court or when it was 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 pay. Consignation not necessary (legal tender sufficient) in case where a privilege or right exists such as:a. mortgage debtor desires to redeemb. vendor a retro who wants to repurchasec. 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

Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178) When consignation deemed properly made When the creditor accepts the thing or sum deposited, without objection, as payment of the obligation When the creditor questions the validity declares that it has been properly made creditor neither accepts nor questions the court ordering the cancellation of obligation. Deposit of redemption money with sheriff is sufficient to effect payment of redemption price not necessary followed by consignation. But mere tender of payment is not itself a payment that relieves the vendor or mortgagor from his liability to pay the redemption price

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.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: For account of creditor loss without fault of the debtor, before acceptance of consignation or its approval by the court, charged to creditor 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 released. Solidary debtors are released only from their solidary liability but not from their shares of obligation

SECTION 2. - Loss of the Thing Due

Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a) the thing is lost when it perishes, or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered. (extends to both real and personal obligation) When loss of thing will extinguish an obligation to give1. 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 liability1. 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.

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 thing never perishes (genus nunquam perit) debtor can still be compelled to deliver a thing of the same kind not superior or inferior.

Republic vs GrijaldoFacts: 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 destroyed through enemy action during the war.Issue: Is Ds obligation to pay the loans extinguished?Ruling: Held: No D is not to deliver a determinate thing, namely, the crops but to pay a generic thing sum of his loans, with interest. Chattel mortgage is a surety.

Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n) partial loss when only a portion of the thing is lost or destroyed or when it suffers depreciation or deterioration. Partial loss is the equivalent of diffi culty of performance in obligations to do Example to deliver race horse, but the horse had broken leg

Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a) 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 calamity

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 dies2. 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 performance

Millan vs Rio OlabarrietaFacts: 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 stormIssue:W/N B is releasedRuling: No. The true intention of the parties is that the unpaid balance should be applied to the installation there was an obligation on his part to pay the balance independently of the purpose for which it was intended to be used;

Gutierrez Repide vs. AlzeliusFacts: S sold land to B, B failed to pay the first installment, B alleged lack of funds for his failure and pleaded impossibility of performance.Issue:Is contention tenable?Ruling: No. stability of commercial transactions requires that the rights of the seller be protected just as effectively as the rights of the buyer. mere pecuniary inability to fulfi ll an engagement does not discharge the obligation of the contract, nor does it constitute a defense to a decree of specific performance.

Labayen vs. Talisay-Silay Milling CoFacts: S obligated to construct a railroad. It was shown later that it is still possible was very dangerous. Issue:May one obligate himself to do something too dangerous to life and property?Ruling: No. Contract was a general contract limited in particular application not impeded by physical impossibility. Not to sanction would run counter to public policy and law

Castui vs. LongaFacts: E lessee failed to comply with terms of his contract for the lease due to an order of president suspending milling or prohibiting planting. Fact that E was prevented in doing soIssue:Is E relieved?Ruling: Yes. if we take into account the fact that to produce or mill sugar cane at that time was contrary to public policy as it would be giving aid and comfort to the enemy

Keng Hua Paper Product, Co., Inc. vs. Court of AppealsFacts: KHHP is obliged to receive and discharge the 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 paper from the shipper in HK, that SLS is asking KHPP to accept 10 metrics ton more than the remaining balance. it would be violating Central Bank rules and regulations and customs and tariff lawsIssue:Did KHPP violated the bill of lading?Ruling: Yes. Petitioner liable for demurrage. Mere apprehension of violating said laws, without a clear demonstration that shipment has become legally impossible, cannot defeat the petitioners contractual obligation Petitioners remedy against seller/shipper discrepancy in the invoice and bill cannot negate the petitioners obligation. Private respondent, as carrier, had no knowledge of the contents of the container. Petitioner is against shipper not the carrier.

McCOnn vs HaraganFacts: Surety issued a bond in case D fails to return in the Phil. DFA banned D from returningIssue:W/N surety is liableRuling: No. Principal obligation has been extinguished by the action of the government in preventing such return

NRCC vs CAFacts: D corporation agent of N in exporting rice and corn and in importing certain collateral goods in exchange therefore, to buy from N the said collateral goods. Almost half the goods were imported and D paid for them. Because of the change of administration, barter transactions were suspended D was able to import the remaining collateral goods Issue: D is liable to N for balance of valueRuling: No the obligation of D to import and buy the collateral goods became unenforceable when importation become legally impossible due to suspension of barter It was the duty of N to make necessary representations with the government to enable D to import the remaining collateral goods N has no cause of action until it has secured the necessary import permit and it brings the remaining collateral goods worth

PNCC vs CAFacts: Lessee petitioner argued payment of rental would commence on the date of issuance of industrial clearance by the the (defunct) Ministry of Human Settlements and not from the date of the signing of the contractIssue:Has lessee has the right to refuse to pay?Ruling: Suspensive condition fulfi lled. Petitioner was held estopped from claiming that the Temporary Use Permit was not the industrial clearance contemplated by the contract Reason of petitioner was financial as well as technical difficulties, not the alleged insufficiency of the Temporary Use Permit Article 1266 not applicable contract did not materialize due to unforeseen events and causes beyond its control fundamental rule that contracts, once perfected, bind both contracting parties, law recognizes exceptions, one is Art 1266 unforeseen event not the legal or physical impossibilities contemplated in the said article Parties assumed the risks of unfavorable developments Pecuniary defense not a defense Motive or particular purpose of lessee in entering into the contract irrelevant - exception is when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend 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 cannot by any means be accomplished - void Impossibility in fact, - in the absence of inherent impossibility in the nature of the thing stipulated to be performed, which is only improbable or out of the power of the obligor. Valid

Reyes vs CaltexFacts: R leased to E corporation 2 parcels of land, seized by Japanese and the company has closed throughout the period. After liberation, E again took the premises, but tendered payment for period occupied by JapaneseIssue:Has R the right (1) to recover the unpaid rent from January 1942 and (2) to rescind the contract of leaseRuling 1. Yes. E would be relieved from the obligation to pay rent if the subject matter of the lease disappeared, personal occupation is the foundation of the contract. Mere trespass a casual disturbance and collateral incident. 2. No. Failure to pay rent was due to impossibility inherent in nature of the thing. Payment of rent was the very foundation, sole consideration for R. E failed to make good the promise, hence he had no control and for no fault