OBLI ESSAY

Question 1

Extinguishment of Obli

Answer 1

Art 1231

Question 2

Article 1231

Answer 2

Obligations are extinguished:
(1) By payment or performance:

(2) By the loss of the thing due:

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code.

Other causes 1. death of a party in case of an obligation requiring personal service.
2. mutual desistance or withdrawal

Question 3

Art 1232 Meaning of Payment

Answer 3

In ordinary parlance payment only means giving of money however in legal …. it had a wider and broader definition which is according Art 1232. Payment means not only the delivery of money but also the giving of a thing other than money, doing an act, and not doing an act.

Question 4

after definition of payment
A payment should include the following:

Answer 4

1. persons who may pay and to whom payment should be made.
2. the thing or object to be delivered.
3. the cause of payment
4. mode or form of payment
5. the place and time in which payment should be made.
6. the imputation of expenses cause by the payment
7. the special parts which may change the oayment and the effcets they generally produce.

Question 5

Who may pay?
Persons from whom the creditor must accept payment

Answer 5

Debtor, authorized agent, successor in interest.

3rd persons:
a. interest in fulfillment of the obligation
b. not interested in fulfillment of the obligation
c. does not intended to be reimbursed

Question 6

3rd persons:
a. interest in fulfillment of the obligation

Answer 6

Valid payment and creditor cant refuse payment, debtor shall reimburse fully the 3rd person, 3rd person is subrogated to the rights of the creditor.
Examples of person who has an interest in fulfillment of the obligation are sureties, guarantor, preferred creditor, and owner of the security.

Ex. D is indebted to C 100k. As a security, D pledged his car. Also, G guaranteed the payment. On the due date, G presented payment.
Explanation..

Question 7

3rd persons:
b. not interested in fulfillment of the obligation

ART 1236.

Answer 7

Creditor can validly refuse payment, If debtor consented the payment 3rd person shall be fully reimbursed, 3rd person is subrogated to the rights of the creditor. If not consented 3rd person will be reimbursed on what has been beneficial to debtor, and 3rd person is not subrogated to the rights of the creditor.

Example, D is indebted to C by 100k. As a security D pledged his car. 2 months before the due date D paid C 10k. 1 month before due X presented 100k to C.
Explanation

Question 8

3rd persons:
c. does not intended to be reimbursed

ART 1238

Answer 8

Payment by a 3rd person who does not intended to be reimbursed is deemed as a donation which needs the debtors consent, if not 3rd person will be reimbursed on what has been beneficial to debtor, and will not be subrogated by the right of the creditor.

Example, D is indebted to C by 100k. D pledged his car as a security. 2 months before the due date D paid C 20k, On the due date, X presented payment for D.
Explanation

Question 9

Who may pay?

Answer 9

Art. 1236 - 1238

Question 10

Who to pay?

Answer 10

Art. 1240 & 1241

Question 11

What to pay?

Answer 11

Art. 1244 & 1246

Question 12

Where to Pay?

Answer 12

Art. 1251

Question 13

Dation in payment

Answer 13

Art 1245

Question 14

Payment by cession

Answer 14

Art 1255

Question 15

Loss of thing due

Answer 15

Art. 1262 - 1269

Question 16

Condonation or remission of debt

Answer 16

Art 1270 - 1274

Question 17

Confusion or Merger of Rights

Answer 17

Art 1275 - 1277

Question 18

ART 1240

Answer 18

Payment shall be made to the person in whose favor is the obligation has been constituted (creditor), his successor in interest (heir or assignee), and his authorized person.

Question 19

ART 1241
Effect of payment to an Incapacitated Person; Effect of payment to a 3rd person; When benefit to creditor need not to be proved by debtor

Answer 19

ART 1241. If the 3rd person who will received the payment for the creditor is incapacitated. General rule the payment is void. Except when the thing delivered is kept and when the payment is proven that has been used for the creditors benefit.

Cases when Benefit not need to be proven: After the payment 3rd person acquires the right of the creditor, If the creditor ratifies the payment to the 3rd person, and due to the creditors conduct the debtor had been led to believe that 3rd person is authorized to receive the payment.

Example (incapacitated). D is indebted to C for 100k. One day before the maturity date C has met a terrible accident and become deaf mute and incapable of reading and writing. D is aware of Cs situation and still present his payment.
Explanation

Example (3rd person) D is indebted to C 100k. On the maturity date D went to C house to present payment, however C is not currently at his residence for a vacation. On that day also D saw C neighbor who is X. Because of certain circumstances and D is only available that day, D ask X to give the payment on his behalf.
Explanation
(burden of proof keme if binayad ni X(

Question 20

ART 1244 and 1246
Give specific thing, generic thing, to do or not to do, delivery of money

Answer 20

What is to be paid. What to pay?
ART 1244. When the obligation is to give a specific thing. Debtor cant compel creditor to receive a different specific thing, even latter asked to give the creditor a specific thing with the same value or even above the thing due.

Example improvised.

ART 1246 Obligation to give a generic thing, creditor cant demand a thing of a superior quality, at the dame time debtor cant give a generic thing or in the same class with inferior value. Unless quality and circumstances is not stipulated or stated the debtor shall have to consider the purpose of the obligation and circumstances. Better to specify!
Examples

ART 1244 par 2. Obligation to do or not to do. An act or forebearance cant be substituted by any other act or forebearance against obligors will.

Obligation to give money. Payment of the obligation or a debt shall be made in the currency stipulated and if not possible due to certain circumstances. Then it shall be paid in the currency which is a legal tender in the Philippines which is peso.
Example: Bumagsak economy ng US

Question 21

ART 1233 When debt is considered paid
1248 Compelled to make partial payments
1234 Recovery allowed in case of substantial performance in good faith

Answer 21

ART 1233. a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. Also the creditor and the debtor involve cant be compelled to accept payment as well as the latter to be compelled to make partial payment ART 1248. Except when the creditor waives complete performance of the obligation due, and if there is a stipulation contrary, and when the obligation is only partially liquidated.
Example. D is indebted to C for 100k. On the maturity date, D cant compel C to accept his 80k payment nor can C compel D to pay only 60k for now when D is already ready for the complete payment.

Define debt. Debt is an obligation to give money, to deliver a thing, to do an act and not to do an act. Which can be enforced if not complied.

ART 1234 If substantial performance is made in good faith.
Example D is obliged to deliver 100 sack of rice to C. However, before the due date the D met valid circumstances and and is only able to deliver 90 sacks of rice and C accepted the rice. Each sack of rice delivered cost 2k each. C therefore shall pay D with 180k for the 90 sacks of rice less already the 20k damage he suffered.

Question 22

ART 1251 Place where obligation should be paid

Answer 22

ART 1251. Payment shall be made in the place designated in the obligation. If not stated or there is no stipulation indicated, when delivering an obligation to give a specific thing, the payment shall take place to wherever the specific thing might be at the exact moment the obligation is constituted. In other kinds of obligation, the payment or performance shall take place to the domicile of the debtor. Domicile means the habitual or permanent residence of the said party.

Example: D is obliged to give C his only pink car. In the contract or obligation there is no stipulated place in which payment should take place. The specific pink car is located on the garage of D when the obligation is constituted. Therefore the payment should took place in his garage. Unless there is indicated stipulation to make the payment at a particular place.

Question 23

After 1251 Time

Answer 23

When or time in which payment should be made. Generally payment should be made upon due or when the obligation is due and demandable. Still debtors may pay on or before the due date or maturity if the period is in favor of the debtor.

Question 24

Others 1239 Free Disposal of the thing due and Capacity to Alienate it

Answer 24

Other articles. ART 1239 In obligations to give, payment made by one who does not have free disposal of the things due and capacity to alienate it shall not be valid. Free of disposal of the thing due means the things to be delivered must be not subject to any claim or lien of a third person. Capacity to alienate means that the person is not incapacitated to enter into contract, and for that matter to make a disposition of the thing due.

Example D agreed to sell C a television set. If the television delivered to C by S belongs to E, the same can be recovered by C because payment is not valid. D does not have free disposal of the tv. If any by chance tv is owned by D and he is underage it is still not valid since he doesn’t have the capacity to alienate it.

Question 25

ART 1242 Payment to 3rd person in possession of credit

Answer 25

ART 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.

Example. D is indebted to C by 100k. D issued a promissory note payable
C. C however lost the promissory note in which later was found in the streets by X. On the due date X presented the promissory note to D. In here payment is not valid and will not extinguished the obligation since the promissory note is only an evidence of the debt or obligation and not the obligation itself.

Question 26

ART 1247 Debtor lay for extrajudicial expenses, Judicial Costs

Answer 26

ART 1247. Unless it is otherwise stipulated, the extra judicial expenses required by the payment shall be for the account of the debtor. With regard to judicial cost Rule of court shall governed. Extra judicial expenses are accounted to the debtor because the payment will extinguish an obligation therefore he is the one who will benefit from the transaction. Judicial costs mean the statutory amount allowed to a party to an action for his expenses incurred in the action.

Question 27

1250 Inflation or Deflation Basis of payment

Answer 27

Art 1250. In case of extraordinary inflation and deflation of the currenxy stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of the payment, unless there is an agreement to the contrary. Inflation means an increase in the supply of money and Deflation is an decrease or reducrion of the circulation of money.

Question 28

After ART 1250

Answer 28

Special forms of payment under civil code are the following: application of payment, dation in payment, payment by cession, and tender of payment or consignation.

Question 29

ART 1252 Application of payment, Requisites

Answer 29

ART 1252 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 (1) and the same creditor.

Requisites of application of payments. The requisites are:
There must be one 1 debtor and one 1 creditor; There must be two 2 or more debts; The debts must be of the same kind, The debts to which payment made by the debtor has
been applied must be due; and
The payment made must not be sufficient to cover all the debts.

Example D is indebted to C. The debt are the following: May 1 10k May 2 15k May 3 give a specific ring May 4 12k with interest of 12% May 5 8k secured by a mortagage May 6 10k. Assuming on May 5 D is ready to pay but only capable of 20k. If D applied the debt he can pay for his first and second debt proportionally. If D did not applied it to any debt and just present payment to C, and he accepted it C can applied it to any debt of D. However if D did not apply the debt and C did not accept the payment, the payment will apply to the debt with the most onerous which is 12k with 12% interest. If there are more than one debt which is onerous and has the same weight it will apply to the both obligation proportionally.

Question 30

ART 1245 Dation in payment, Requisites

Answer 30

ART 1245 Dation in payment or dacion en pago whereby property is alienated to the creditor in satisfaction of debt which is in money, it is governed by law of sales because undertaking really partakes in one sense the nature of sales that is the creditor is really buying the thing or property of D, the payment for which is to be charged against the debtors obligation. However it is different to a contract of sales since sales creates obligation while dation in payment extinguishes it.

Requisites: In order to qualify for dation in payment first in order to finalize the payment commitment it is necessary to deliver an asset or perform a service other than the one originally contracted, the debtor and creditor have to agree on this form of payment of the obligation, the creditor has to express acceptance of it because he has no obligation to accept it.

To further define it, it is a method of payment to pay outstanding debt, by handing over a movable or immovable property to complete the payment. This mode of payment extinguishes obligation to the extent value of things delivered, agreed or approved by both parties unless the party has an agreement or implied by silence that considers the thing delivered equivalent to the obligation, totally extinguishes the obligation

Question 31

ART 1255. Payment by cession Requisites
Effect of Payment by Cession
Dation vs Cession

Answer 31

ART 1255. Payment by cession. The debtor may cede or assign his property to his creditors in payment of his debt. This cession, unless there is stipulation that says otherwise shall only release the debtor of his obligation to the extent of the net proceeds of the things assigned. The agreement which in the effect of the cession are made between the debtor and his creditors shall be governed by special laws.

Kinds of cession or assignment. Legal assignment and contractual or voluntary assignment. Legal assignment is governed by insolvency law and requires the consent of the majority of the creditor. While contractual or voluntary assignment all of the parties involved must consent to the assignment. It merely involves a change of the object of the obligation by agreement of the parties and at the same time fulfilling the same voluntarily

Requisites: There must be two or more creditors. The debtor must be (partially) insolvent. The assignment must involve all the properties of the debtor. The cession must be accepted by the creditors.

Effect of payment of cession:
The assignment of the properties of the debtor does not guarantee that he or she will be free of his or her obligation. Unless there is a stipulation made, as long as the net proceeds of the properties are still insufficient to satisfy the credit, the debtor is still liable.

Dation in payment vs Payment by Cession
In dation in payment there is only one creditir while in cession there are several creditors. Dation does not presuppose the insolvency of the debtor or a situation of financial difficulties, while in cession, the debtor is insolvent at the time of assignment. Dation does not involve all the property of the debtor while in cession it extends to all the property of D that are subject to execution. In dation ownership to the property is passed or given to the creditor while in cession it is only the right to sell. Dation extinguishes obligation regardless of deficiency of proceed from the property assigned while cession only extinguishes obligation up to the extent of the proceeds of the property.

The two is sinilar in a way that this two are both special forms of payment, governed by law of sales, and both passes property to extinguishe obligation.

Example D is indebted to several creditors with a total of 1M. Asset is not enough to oay the debt. With consent of the creditors D assigned a propert which in turn to be sold to satisfy their creditor. If net proceeds of the property is only 500k D still liabke for the remaining balance which is 500k unless there is stipulation to the contrary.

Question 32

ART 1256 Tender of Payment Legal Tender
1258 Consignation

Answer 32

Tender of payment or consignation.
ART 1256 Tender of payment is an act of the debtor showing intention of complying with his obligation. In this section tender of payment is valid if tendering a legal tender. A legal tender refers to bills and coins issued by BSP. Bills are legal tender in am extent of any amount, coins suh as 1 peso 5 peso 10 peso are legal tender up to extent of 1k and coins like centavos are legal tender up to 100. Consignation is made by depositing the thing due at the disposal of a judicial authority before whom the tender of payment shall be made, in a proper case and the announcement the consignation in one case ART 1258.

Example. D is indebted by 100k to C On the due date D offers to pay 100kbut C refuses to accept the made without justified reason. D’s obligation will not be extinguished until he makes a valid consignation. The refusal of C will cause no effect to payment but D may be relieved from the payment of interest. Expenses of consignation shall be charged to C.

Question 33

ART 1262 When considered lost
When loss of this will extinguish an obligation to give

Answer 33

Loss of the thing due.
ART 1262 an obligation of delivery of a determine thing shall extinguish if lost or destroyed without the fault of the debtor, before he has incurred delay. when By law or stipulation, obligor is liable even because of a fortuitous event, the loss of the thing does not extinguish obligation and he shall be responsible for the damages. The same rule applies when the nature of the obligation requires an assumption of risk. It is understood that a thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or cant be recovered.

Question 34

After 1263 Effect of Loss of a Generic Thing

Answer 34

ART. 1263 In obligation to deliver a generic thing, loss or destruction will not extinguish obligation even it is due to a fortuitous event. It is because a generic or genus thing generally never perishes. Debtor can still deliver of the same kind. However creditor cant compel a generic thing with a superior quality at the same time debtor cant deliver with a inferior value.

Example D is obliged to deliver 100 sacks of rice. However, 100 cavan has been destroyed by flood. In this case D is still liable to B because it is a generic thing. Suppose C bought rice from D from a specific season it will be considered as a specific thing and has been confined to a particular class and if destroyed by flood obligation would be extinguished.

Question 35

After ART 1264 Partial loss of specific thing

Answer 35

ART 1264. Courts shall determine whether under circumstances the partial loss of the object is so important to extinguish obligation
Partial loss means only a portion of the thing is loss or destroyed.

Example D is obliged to give C a specific race horse. Due to an accident the horse suffered a broken leg and is injured permanently. In this there is partial loss and is enough to extinguish obligation as due to the purpose of the obligation. However if the horse met an accident due to the negligence or fault of D. D would be liable to C with damages.

Question 36

ART 1265 Presumption of fault in case loss of thing in possession of debtor

Answer 36

ART 1265. If loss happens in the possession of the debtor, the is a presumption that the loss is due to the debtors fault, unless there is a proof to state otherwise, the presumption does not apply if it happens due to a fortuitous event.

Example D borrowed a car to C. However D told C that the car had been stolen and said it was not his fault. The said reason will not extinguish D obligation which is to return the car and there would be presumption that the loss is due to his fault, unless there is a cctv or vid that proves otherwise.

Question 37

ART 1266 Difficulty of Impossibility of Performance, Kinds

Answer 37

Art 1266. The debtors obligation shall be released if the prestation has become legally or physically impossible to perform without the fault of the debtor.

Kinds of impossibility. Physically Impossibility is when the obligor dies or becomes physically incapacitated to perform obligation. Legal impossibility occurs when the obligation cant be performed because it is rendered impossible by provision of law, although physically it may be possible for performance.

Example. D is obliged to deliver a specific turtle to C. Before the delivery the turtle was declared to be extinct and a law was passed effectively immediately that the selling of the turtle would be illegal. In this case the obligation of D would be extinguished…

Question 38

ART 1267 Effect of Difficulty of Performance

Answer 38

When the performance of service has become so difficult as to be manifested beyond the contemplation of the parties, the obligor may also be released from the obligation partially or completely.

Example. D agreed to construct a road near the mountain. However a strong storm has caused the mountain to have an avalanche making construction of road dangerous to human lives

Question 39

ART 1268 Effect of fortuitous event where proceeds from criminal offense

Answer 39

Obligation to delivery of a specific and determinate thing proceeds from a criminal offense, if loss the debtor is liable for whatever reason it may cause, unless the thing having been offered by hum to the person who should receive it, the latter refused without justification to accept it.

Example D stole the car of C. The car is stolen by another person. In any case, D has a criminal offense obligation which is to return it. And since he lose it he has to pay C for damages. Since the obligation also arise from an action punishable by law.

Question 40

Art 1269 Right of Creditor to proceed against 3rd person

Answer 40

The obligation having been extinguished by loss of thing, creditor shall have all the rights of action which debtor may have against third person by reason os loss.

Example. D is obliged to give C a specific car. Before delivery the car was lost because of T a third person. In this case C will have the right of action against T. And D obligation would be extinguished since it was not his fault.

Question 41

ART 1270 Condonation or Remission Requisites

Answer 41

Condonation or remission is an act of liberality where the creditor gives up his right against the debtor, either in whole or in part, resulting in the extinguishing of the latter’s obligation. It is essentially gratuitous and requires the acceptance of the debtor. The reason for the need of debtor’s consent is that one cannot simply impose his own generosity upon another person. The remission may be made expressly or impliedly.

For a condonation or remission to be valid, the following requisites must concur: the debt must be existing and demandable; it must be gratuitous; the debtor must accept the remission; it must not be inofficious; and if made expressly, it must conform with the forms of donation.

EXAMPLE Jade owes Eduard P500.00 when the debt matured Eduard told Jade that he need not pay the debt since he was condoning it. Jade in turn, expressed her gratitude. Here, the debt has been extinguished by remission

Question 42

ART 1271 Presumption in case of voluntary delivery of Docu of indebtness by creditor

Answer 42

The delivery of a private document evidencing credit, made voluntarily by the creditor to the debtor, implies renunciation of action which the former had against the latter. In order to nullify this waiver, it should be claimed inofficious, the debtor and his heir may uphold it by proving that the delivery of the document was made in virtue in payment of the debt.

Question 43

ART 1272 Presumption in case document is found in possession of debtor

Answer 43

Wherever the private document in which debt appears is found in the possession of the debtor it shall be presumed that the creditor delivered it voluntarily unless contrary is proved.

Example. D owes C P10,000 evidenced by a promissory note. The note, signed by D, is given to C. If the promissory note is voluntarily, delivered to D, the presumption is that the debt must have been paid by D.

Suppose it is not known how D came into possession of the promissory note. The presumption is that it was voluntarily delivered by C, unless C proves the contrary.

Question 44

ART 1273 Effect of renunciation of principal debt of the accessory obligation

Answer 44

The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force.

The above provision follows the rule that the accessory follows the principal. While the accessory obligations cannot exist without the principal obligation, the latter may exist without the former.

EXAMPLE: D owes C P10,000 with G as guarantor. The principal debt here is the P10,000, while the accessory obligation is the guaranty of G.

The remission of the debt of D by C shall extinguish the guaranty of G. But if only the guaranty of G is condoned, the obligation of D shall remain in force.

Question 45

ART. 1274 Presumption in case thing pledged found in possession of debtor

Answer 45

It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.
Pledge or contract of pledge is a real contract. And a real contract one of its requisites is to deliver a specific thing to C. If the thing pledge is returned presumption na na condoned yung object.

Example

Question 46

After 1234 example

Answer 46

D is indebted to c for 100k. On maturity date, D cant compel to accept 80k only for now nor C compel D to pay 60k only for now if he sor she is already ready to pay

Question 47

ART 1275 Confusion or Merger
Reason
Requisites

Answer 47

The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person.

The law treats confusion or merger as a mode of extinguishing obligations because if a debtor is his own creditor, enforcement of the obligation becomes absurd since a person cannot claim payment from himself.

Requisites :It must take place between the creditor and the principal debtor. The very same obligation must be involved. The confusion must be total or as regards the entire obligation

Example: Gong is indebted to Yu in the amount of 1000 pesos which debt Gong issued a promissory note, later it is endorsed in favor of Gong. Yu negotiates the promissory note, later it is endorsed in favor of Gong. In this case, the obligation to pay the promissory note is extinguished as much as Gong being the maker of the note.

Question 48

ART 1276
Effect of merger in the person of principal debtor or creditor.
Person of guarantor

Answer 48

Merger which takes place in the person of the principal debtor or creditor benefits the guarantors.

Confusion which takes place in the person of any of the latter does not extinguish the obligation.

Effect of merger in the person of principal debtor or creditor. Merger in the person of the principal debtor or creditor extinguishes the obligation. Hence, the accessory obligation of guaranty is also extinguished in accordance with the principle that the accessory follows the principal.

The extinguishment of the accessory obligation does not carry with it that of the principal obligation. Consequently, merger, which takes place in the person of the guarantor, while it extinguishes the guaranty, leaves the principal obligation in force.

EXAMPLE: Suppose, in the example above, C assigns his credit to E who, in turn, assigns the credit to G, the guarantor. In this case, the contract of guaranty is extinguished.

However, D’s obligation to pay the principal obligation subsists. G now, as the new creditor, can demand payment from D.

Question 49

ART 1277
Confusion in joint obligation

Answer 49

Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur.

A, B and C are jointly liable to D in the amount of P9,000 evidenced by a negotiable promissory note. D indorsed the note

EXAMPLE:
to E, who, in turn, indorsed it to A. In this case, A’s share in the obligation is extinguished because of confusion in his person. However, the indebtedness of B and C in the amount of P3,000 each remains, because as to them there is no confusion. Consequently, B and C would be liable to A. the new creditor, P3,000 each.

Question 50

ART 1278 Compensation
Kinds
Object

Answer 50

Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

Compensation is the extinguishment to the concurrent amount of the debts of two persons who, in their own right, are debtors and creditors of each other.

It involves the simultaneous balancing of two obligations in order to extinguish them to the extent in which the amount of one is covered by that of the other.

EXAMPLE:

A owes B the amount of P1,000.
Bowes A the amount of P700.
Both debts are due and payable today. Here, compensation takes place partially, that is, to the concurrent amount of P700. So, A shall be liable to B for only P300.

If the two (2) debts are of the same amount, there is total compensation. The two (2) debts are extinguished without actual transfer of money between the parties.

The object of compensation is the prevention of unnecessary litigations and payments.

Kinds of Compensation
Legal compensation
Conventional compensation
Facultative compensation
Judiciary compensation

Question 51

ART 1290 Legal Compensation Consent

Answer 51

compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.

Question 52

ART 1279 Requisites of Legal Compensation

Answer 52

In order that compensation may be

proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Example
1. A owes B P1,000. B owes A P1,000. Compensation will take place because A and B are principal debtors and creditors of each other.
2. A obliged himself to deliver to B 10 sacks of rice while B obliged himself to deliver to A 10 sacks of corn.
Compensation will not also take place because the things due are not of the same kind. Neither will there be compensation if the obligation of A is to deliver 10 sacks of macan rice, while that of B is to deliver 10 sacks of wagwag rice.
3. A owes B P1,000 due today. B owes A P1,000 due next month. Compensation cannot take place as the debts are not due on the same date. However, if A has not yet paid B on the date that the obligation of B becomes due, there will be compensation on that date.
4. A owes B P1,000. B owes A the share of the latter in a business the amount of which is still to be ascertained. Compensation will not take place as the debt of B is not liquidated.
5. A owes B P10,000. B owes A P10,000. B also owes C P10,000.
C causes the garnishment of the credit of B against A and notifies A not to pay B P10,000 as C has a better right to the said amount.
B may not owe C but the latter claims that he and not B is the creditor of A. In this case, compensation cannot take place between A and B in view of a controversy commenced by C, a third person. In the meantime, the compensation is suspended.

Question 53

ART 1280 Compensation benefits guarantor

Answer 53

guarantor may set up compensation as regards what the creditor may owe the principal debtor.

Example A owes B P10,000 with G as guarantor. B owes A P10,000.

Here, the obligation of guaranty is extinguished by compensation. But if the compensation is only partial and A cannot pay the balance, G will be liable for the said balance.

Question 54

ART 1282 Voluntary or Conventional Compensation

Answer 54

Voluntary or conventional compensation includes any compensation which takes place by agreement of the parties ever if all the requisites for legal compensation are not present.

Question 55

ART 1283 Judicial Compensation

Answer 55

Compensation may also take place when so declared by a final judgment of a court in a suit. A party may set off his claim for damages against his obligation to the other party by proving his right to said damages and the amount thereof.

EXAMPLE:

D owes C P10,000. When C demanded payment, D failed to pay. In anger, C damaged the property of D to the extent of P8,000. D can set off the obligation of C to pay him damages in the amount of P8,000 against his debt of P10,000.

Question 56

ART 1284 Compensation Rescissible and Voidable debts

Answer 56

When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided.

Example D owes C P10,000. Subsequently, D, through fraud, was able to make C sign a promissory note that C is indebted to D for the The debt of D is valid but that of C is voidable. Before the same amount. debt of C is nullified, both debts may be compensated against each other if all the requisites for legal compensation are present.

Question 57

ART 1285 Compensation in Assigned Debts

Answer 57

Where compensation has taken place after assignment.

1. Assignment with the consent of debtor.
   EXAMPLE: A owes B P30,000 due November 15. B owes A P10,000 due November 15. B assigned his right to C on November 1 with the consent of A.

On November 15, A cannot set up against C, the assignee, the compensation which would pertain to him against B, the assignor. In other words, A is liable to C for P30,000 but he can still collect the P10,000 debt of B.

2. Assignment with the knowledge but without the consent of debtor. -

EXAMPLE:
A owes B P10,000 due November 1.
B owes A P20,000 due November 10.
A owes B P10,000 due November 15.
A assigned his right to C on November 12. A notified B but the latter did not give his consent to the assignment. How much can C collect from B? B can set up the compensation of debts on November 10 which was before the cession on November 12. There being partial compensation, the assignment is valid only up to the amount of P10,000.

3. Assignment without the knowledge of the debtor. -

EXAMPLE: In the preceding example, let us suppose that the assignment was made without the knowledge of B who learned of the assignment only on November 16. In this case, B can set up the compensation of credits before and after the assignment. The crucial time is when B acquired knowledge of the assignment and not the date of the assignment. If B learned of the assignment after the debts had already matured, he can raise the defense of compensation; otherwise, he cannot.

Question 58

ART 1286 Compensation where debts payable at different places.

Answer 58

Compensation takes place by oper- ation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment.

Question 59

ART 1291 Novation

Answer 59

Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor.
Novation is the total or partial extinction of an obligation through the creation of a new one which substitutes it.

It is the substitution or change of an obligation by another, which extinguishes or modifies the first, either by changing its object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor.

Question 60

ART 1292 GR Novation

Answer 60

In novation Old obligation us extinguished and replace by new obligation

Ex. D is obliged to deliver a car C. However D and C entered into another contract. Whreby instead of car he will deliver aircon.

Explain

Question 61

ART 1297 New obli Void and Voidable

Answer 61

If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event.

Question 62

ART 1297 Orig obligation is void or voidable

Answer 62

The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts which are voidable.

Example. S agreed to deliver prohibited drugs to B. Later on, it was agreed that S would pay B P100,000 instead of delivering the drugs.

The novation is void because the original obligation is void.

Question 63

ART 1296 Effect of novation on Accessories obligation

Answer 63

When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent.

Example: A owes B P20,000 with interest at 12%. B owes C P2,400.

It was agreed among the parties that A would pay the interest of P2,400 to C. In this case, besides the principal obligation of A, there is a stipulation in favor of C, a third person. Later on, A and B executed another contract whereby they agreed that A would deliver to B a television set in payment of the loan.

In spite of the novation, the accessory obligation to pay the interest of P2,400 to C still subsists unless C gives his consent to the novation.

Question 64

ART 1293 Personal Novation

Answer 64

Personal novation may be in the form of: (1) Substitution. - when the person of the debtor is substituted or (2) Subrogation. - when a third person is subrogated in the rights of the creditor.

Kinds of substitution.
Article 1293 speaks of substitution which, in turn, may be:

(1) Delegacion or that which takes place when the creditor accepts a third person to take the place of the debtor at the instance of the latter. The creditor may withhold approval. (Art. 1295) In delegacion, all the parties, the old debtor, the new debtor, and the creditor must agree.
Example. D owes C P1,000. D proposed to C that X would substitute him as debtor. C agreed to the proposal. If, at the time of the delegacion, X was already insolvent but his insolvency was neither of public knowledge nor known to D, then D is not liable. Neither is D liable if the insolvency of X took place after he delegated his debt. However the debt of the original debtor can be recovered and substitution is not valid if X is insolvent and before the delagation and D knows it.

(2) Expromision or that which takes place when a third person of his own initiative and without the knowledge or against the will of the original debtor assumes the latter’s obligation with the consent of the creditor.

Example: D is indebted to C. T tells C that he will pay the debt of D. C consented it however D does not. It would still be valid. But the old debt of orig debt will not be recovered unless proven that orig debtor is an accomplice of New debtor.

Question 65

Subrogation

1302 Requisites of Legal Subrogation

Answer 65

Subrogation transfers to the person subrogated the credit with all the rights there to appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.

Kinds
Legal and Conventional Subrogation

Legal Subrogation Requisites:
1. When a creditor pays another creditor who is preferred, even without the debtor’s knowledge

A owes B P1,000.00 secured by a first mortgage on the land of A. A also owes C P2,000.00. This debt is unsecured. Under the law, B, who is a preferred creditor, has preference to payment with respect to the land as against C who is merely an ordinary creditor. If C pays the debt of A to B, C will be subrogated in B’s right so that he can have the mortgage foreclosed in case A fails to pay the P1,000.00 debt.

2. When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor

A owes B P1,000.00. C pays B with the express or implied consent of A. In this case, C will be subrogated in the rights of B.

2. When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter’s share.

Suppose in the same example, C is the guarantor of A. C is a person interested in the fulfillment of the obligation of A as he would be benefited by its extinguishment. If C pays B, even without the knowledge of A, C is subrogated in the rights of B. Confusion takes place in the person of C. Hence, the guaranty is extinguished but the principal obligation still subsists

PARTIAL SUBROGATION
D is indebted to C for P10,000.00. X pays C P6,000.00 with the consent of D. There is here partial subrogation as to the amount of P6,000.00. D remains the creditor with respect to the balance of P4,000.00. Thus, two credits subsist. In case of insolvency of D, C is preferred to X, that is, he shall be paid from the assets of A ahead of X.