Article 1250 – In case of extraordinary inflation or
If there is no stipulation and the thing to be
deflation of the current stipulated should intervene,
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.
INFLATION
- Sharp sudden increase of money or credit or
both without a corresponding increase in
business transactions. Inflation causes a drop
in the value of money, resulting in the rise of
the general price level.
DEFLATION
- Reduction in volume and circulation of the
available money or credit, resulting in a
decline of the general price level. It is the
opposite of inflation.
*Under Art. 1250, the purchasing value of the
currency at the time of the establishment of the
obligation shall be the basis of the payment, in case
of extraordinary increase or decrease in the
purchasing power of the currency which parties
could not have reasonably foreseen subject to the
agreement of the parties to the contrary.
Example:
A borrowed P5,000 from B payable after five years.
On the maturity of the obligation, the value of
P5,000 dropped to P2,500 because of inflation (or
increased to P10,000 because of deflation). In this
case (assuming there is extraordinary inflation) the
basis of the payment shall be equivalent value of the
currency today to that five years ago. Hence, A is
liable to pay B P2,500 (P10,000), unless there is an
agreement to the contrary.
Article 1251 –Place where obligation shall be paid.
RULES:
1. If there is stipulation, the payment shall be
made in the place designated.
2. If there is no stipulation and the thin to be
delivered is specific, the payment shall be
made at the place where the thing was, at the
perfection of the contract.
3.
delivered is generic, the place of payment
shall be the domicile of the debtor. In this
case, the creditor bears the expenses in
going to the debtor’s place to accept
payment.
*The order enumerated is successive and
exclusive.
VENUE
- Place where a court suit or action must be
filed or instituted.
DOMICILE
- The place of a person’s habitual residence;
the place where he has his true fixed
permanent home and to which place he,
whenever he is absent, has the intention of
returning. It requires bodily presence in the
place and also an intention to make it one’s
domicile.
RESIDENCE
- Only an element of domicile. It simply
requires bodily presence as an inhabitant in a
given place.
Article 1252 – APPLICATION OF
PAYMENTS
- It 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 favour of one and the same creditor.
REQUISITES:
1. There must be one debtor and one creditor.
2. There must be two or more debts.
3. The debts must be of the same kind.
4. The debts to which payment made by the
debtor has been applied must be due.
EXCEPTION: if there is a stipulation that
the debtor may apply or it is made by the
creditor or debtor, as the case maybe, for
whose benefit the period has been
constituted.
 5. The payment made must not be sufficient to
cover all the debts.
RULES ON APPLICATION OF PAYMENTS:
1. The debtor has the first choice and when
making his choice, he must indicate at the
time of making payment and not afterwards
which particular debt is being paid.
2. The right of making the application of
payment once exercise cannot be revoked by
the debtor unless the creditor consents to the
change.
3. If the debtor does not apply payment, the
creditor may make the designation by
specifying in the receipt which debt is being
paid with the consent of the debtor.
4. If the creditor has not made the application
or if the application is not valid, the debt
which is most onerous to the debtor among
those due shall be deemed to have satisfied.
Article 1254 – like 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 that as
a solidary debtor; a debt secured by a
mortgage or by pledge are more onerous
than that of unsecured debt; of low interest
bearing debts, the one with a higher rate is
more onerous, an obligation with a penalty
is more burdensome than one without
penalty clause.
5. If debts due are of the same nature and
burden, the payment shall be applied to all
of them proportionately.
Example:
A owes B as follows:
1. P1,500 payable on September 5
2. P1,200 payable on September 20
3. A specific radio worth P2,000 to be
delivered on September 20 and
4. P1,000 payable on October 15
On September 20, A paid B P1,500. A may
apply the P1,500 to debt(1) or to debt (1) and if
B does not object to a portion of debt (1).
If A paid only P1,000, he cannot choose to
apply his payment to debt (1) because B cannot
be compelled to receive partial payment. A
cannot also apply his payment to debt (3)
because it is not of the same kind. He cannot
also apply to debt(4) because it is not yet due
unless there is stipulation to the contrary or he
has the benefit of the period.
If A does not make a choice, B can make the
designation in the receipt with the consent of A.
A can change the application made by B.
Article 1253 - If the debt produces interest,
payment of the principal shall not be deemed to
have been made until the interest have been
covered.
*The rule is mandatory. The debtor cannot
choose to credit his payment to the principal
before the interest is paid. The payment must be
applied first to the interest and whatever balance
is left can be credited to the principal.
Example:
A owes B P1,000 with 5%interest monthly. If A
paid P1,000, it will first be applied to the
interest earned by the debt. Then the balance of
P950 will be credited to the amount. Therefore
A will still owe B P50 of the principal.
Article 1255 – PAYMENT BY CESSION
- It is the assignment or abandonment of all
the properties of the debtor for the benefit of
his creditors in order that the latter may sell
the same and apply the proceeds thereof to
the satisfaction of their credits.
REQUISITES:
1. There must be two or more creditors;
2. The debtor must be (partially) insolvent;
3. The assignment must involve the properties
of the debtor;
4. The cession must be accepted by the
creditors.
EFFECTS OF PAYMENT BY CESSION:
Unless there is a stipulation to the contrary, the
assignment does not make the creditors owners of
the property of the debtor and the debtor is released
from his obligation only up to the net proceeds of
the sale of the property assigned. In other words, the
debtor is still liable if there is balance.
Example:
A owes B, C, D, and E the amount of P500,000. His
assets are insufficient to pay all his debts. With the
consent of the creditors, A may assign his property
to them to be sold to satisfy their credit. If the net
proceeds of the sale amounts only to P100,000, A is
still liable to pay P400,000, unless there is
stipulation that the assignment shall be in full
satisfaction of all the debts.
Article 1256 – TENDER OF PAYMENT AND
CONSIGNATION
- The act on the part of the debtor of offering
to the creditor the thing or amount due. It is
considered extrajudicial.
CONSIGNATION
- The act of depositing the thing or amount
due with the proper court when the creditor
does not desire or cannot receive it after
complying with the formalities required by
law. It is always judicial and requires a prior
tender of payment.
*Tender of payment must precede consignation and
must be proven by the debtor in the proper case.
REQUISITES FOR A VALID TENDER OF
PAYMENT:
1. It must comply with the rules on payment
and therefore the payment should be made in
legal tender;
2. It must be unconditional and for the whole
amount;
3. It must be actually made.
REQUISITIES OF A VALID CONSIGNATION:
1. Existence of a valid debt which is due;
2. Tender of payment by the debtor and refusal
without justifiable reason by the creditor to
accept it;
3. Previous notice of consignation to persons
interested in the fulfilment of the obligation,
the purpose of which 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 and in case of loss of the thing
consigned, he shall bear the risk thereof.
4. Consignation of the thing or sum due;
5. Subsequent notice of consignation made to
interested parties, the purpose of which is to
enable the creditor to withdraw the thing or
sum deposited in case he accepts the
consignation.
TENDER OF PAYMENT IS NOT
REQUIRED:
1. When the creditor is absent or unknown or
does not appear at the place of payment ;
2. When incapacitated to receive the payment
at the time it is due;
3. When without just case he refuses to give a
receipt;
4. When two or more persons claim the right to
collect;
5. When the title of the obligation has been
lost.
Article 1259 – the expenses of consignation when
properly made shall be charged against the creditor.
Article 1260 - once the consignation has been duly
made, the debtor may ask the judge or 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 sum
deposited allowing the obligation to remain in force.
*The observance of all the requisites of
consignation operated as a valid payment hence, the
debtor can move for the cancellation of the
obligation by the court. The debtor however may
withdraw as a matter of right the thing or sum
deposited:
1. Before the creditor has accepted the consignation;
or
2. Before a juridical declaration that the
consignation has been properly made as he is still
the owner of the same. In such a case, the obligation
shall continue to remain in force and all expenses
are paid by the creditor.
Article 1262 – LOSS OF THE THING DUE
- A thing is lost when it perishes or goes out
commerce or disappears in such a way that
its existence is unknown or it cannot be
recovered.
REQUISITES: IN ORDER THAT AN
OBLIGATION TO GIVE WILL EXTINGUISH
AN OBLIGATION:
1. Obligation is to deliver a specific thing;
2. The loss of the thing occurs without the fault
of the debtor;
3. The debtor is not guilty of delay.
INSTANCES WHEN EVEN IF TEHRE IS LOSS
OF THE SPECIFIC THING EVEN WITHOUT
THE FAULT OR DELAY ON THE PART OF TH
DETOR WILL NOT EXEMPT HIM FROM
LIABILITY, thus he can still be held liable for
damages:
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
Article 1263 – In an obligation to deliver a generic
thing, the loss or destruction of a thing of the same
kind does not extinguish the obligation
*This is based on the principle GENUM
NUNQUAM PERIT and the debtor can still be
compelled to deliver a thing of the same kind.
However, the creditor cannot demand a thing of
superior quality neither can the debtor deliver a
thing of inferior quality.
Article 1264 – speaks of partial loss where the court
is given the discretion in case the parties disagree
whether partial loss is equivalent to a complete or
total loss.
*There is partial loss when only a portion of the
thing is lost or destroyed or when it suffers
depreciation or deterioration. Partial loss is
equivalent of difficulty of performance in obligation
to do.
Example:
A is obliged to deliver a specific horse to B. The
horse met an accident and it suffered a broken leg.
The injury is permanent. Partial loss is so important
as to extinguish the obligation.
If the loss is due to the fault of A, he shall be
obliged to pay the value of the horse with indemnity
for damages.
If the horse to be delivered is to be slaughtered by
B, the injury is clearly not important. Even if there
was fault on the part of A, he can still deliver the
horse with liability for damages, if any, suffered by
B.
Article 1265 – Disputable presumption of fault
whenever the thing to be delivered is lost in the
possession of the debtor.
REASON:
- There is presumption since the debtor has
the custody and care of the thing and he can
easily explain the circumstances of the loss.
EXCEPTION:
- In case of natural calamities, lack of fault of
the debtor is more likely, so it is unjust to
presume negligence on his part.
*in Art.1165, the obligor who is not at fault is still
liable in case he is guilty of delay or promised to
deliver the same thing to two or more persons who
do not have the same interest.
Example:
A borrowed the cell phone of B. On due date of the
obligation, to return the cell phone, A told B that the
cell phone was stolen and that he was not at fault.
That is not enough to extinguish A’s obligation.
There was a presumption that it was A’s fault why
the cell phone is lost and therefore he is liable,
unless he proves the contrary.
Suppose the house of A was gutted by fire and
accidental origin and that the cell phone was at his
house at the time of fire. Here, A is not liable unless *Condonation or remission is the gratuitous
B proves fault on the part of A. abandonment by the creditor of his right against
the debtor and thus a form of donation.
Article 1266 – If the obligation becomes legally or
physically impossible without the debtor’s fault, the REQUISITES:
obligation is extinguished.
1. It must be gratuitous;
KIND OF IMPOSSIBILITY: 2. It must be accepted by the obligor;
3. The parties must have capacity;
1. Physical impossibility
4. Must not be inofficious;
- In purely personal obligations, when the
5. If made expressly, it must comply with the
personal qualifications of the obligor are
forms of donation.
involved.
2. Legal impossibility
- Obligation cannot be performed because it is
rendered impossible by provision of the law.
Article 1267 - When the service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also
be released therefrom, in whole or in part.
*the impossibility of the performance releases the
obligor in whole or in part.
Article 1268 – Another instance when a fortuitous
event does not exempt the debtor from liability, that
is where the obligation proceeds from a criminal
offense except when the creditor refused to accept
the thing without justification, after it has been
offered to him.
Article 1269 – The creditor is given the right to
proceed against the third person responsible for the
loss. There is no need for assignment by the debtor.
Example:
A is obliged to deliver B a specific horse. The horse
is lost because of the fault of C. The obligation of A
is extinguished and he is not liable to B. Such being
the case, A would not be interested in going after C.
The law however protects B by giving him the right
to bring an action against C to recover the price of
the horse with damages.
Article 1270 – CONDONATION OR REMISSION
OF DEBT
- Speaks of condonation or remission as a way
of extinguishing an obligation.