OBLICON

JARDINEL, NICOLE B.
BA-11

I. Focus Questions

A. Define the following:

(1) Compensation – is the extinguishment to the concurrent amount of the debts of two persons who, in their
own rights are debtors and creditors of each other. (Arts. 1278, 1290)
– it involves the simultaneous balancing of two obligation in order to extinguish them to the
extent in which the amount of one is covered by that of the other. (8 Manresa 401)

(2) Legal Compensation – when it takes place by operation of law even without the knowledge of the parties.
(Arts. 1279 & 1290)

(3) Facultative Compensation – compensation which can be set up only at the option of a creditor, when legal
compensation cannot take place because one or some elements are missing. While this creditor can oppose
compensation, he renounces it, but he himself can compensate.

(4) Novation – is the total or partial extinction of an obligation through the creation of a new one which
substitute it.

(5) Expromision – which takes place when a third person on 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. (8
Manresa 436; Arts. 1293-1294). It logically requires the consent of the third person and the creditor.

(6) Delegacion – one which takes place when the creditor accepts a third persons to take the place of the debtor
at the instance of the latter. The creditor may withhold approval. (Art. 1295)
– the insolvency of the new debtor, who has been proposed by the original debtor and accepted
by the creditor, shall not revive the action of the latter against the original obligor, except when said
insolvency was already existing and of public knowledge, or known to the debtor, when he delegated his
debt.

B. Discussions:

(1) When there is subrogation, what rights are acquired by the new creditor?

According to Manresa, subrogation as the transfer to a third person of all the rights appertaining to the
creditor, including the right to proceed against the guarantor, possessor of mortgages, subject to any legal provision
or any modification that may be agreed upon.

(2) Give the requisites of (a) novation.

Requisites of Novation:
a. Previous valid obligation.
b. Capacity and intention of the parties to modify or extinguish the obligation.
c. The modification or extinguishment of the obligation.
d. The creation of a new, valid obligation.
 (3) May there be compensation although the things due are not consumable? Explain.

There is no compensation when the things due are not consumable. According to Article 1279 par. 2, in
order that compensation may be proper, it is necessary 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.

C. Problems:

1. D borrowed P50,000 as character loan (no security) from a bank. Despite demands for payment after the
loan fell due, D did not pay the bank. D has a savings deposit of P40,000 with the bank. Has the bank the
right to apply the deposit to the payment of D’s debt? Why? (5 PTS)

Yes, the bank has the right to apply the deposit to the payment of D’s debt. According to Article 1287,
Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum. As a general rule, a bank has a right of set off the deposits in its hands for
the payment of any indebtness to it on the part of a depositor. Similarly, a depositor has every right to set off his
money deposit with bank against the loans he had obtained from the said bank. Knowing that the other party is a
bank deposit, it may apply to the deposit to the payment of D’s debt.

2. After contracting a debt in the amount of P10,000 in favour of C, D succeeded through fraudulent means to
make C liable to him in the same amount. Assuming that both obligations are now due, may the two debts
be compensated against each other? What is the effect if the debt of C is later annulled in court at the
instance of D? Explain (5 PTS)

Yes, the two debts may be compensated against each other. According to Article 1284, when one or both
debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded
or avoided. The effect of the annulment is retroactive. It is the same as if there had been no compensation.

3. T (THIRD PERSON) tells C (creditor) that T will the pay the debt of D (debtor). C agrees. Is D released from
his obligation to C? Why? (5 pts)

Yes, D is released from his obligation to C. According to Article 1293, novation which consists in substituting a
new debtor in the place of the original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives him he rights mentioned in
Articles 1236 and 1237.

With the substitution of debtor from D to T. There is an Expromision, which T takes place D as being an original
debtor with his own initiative and without the knowledge or against the will of the original debtor that assumes the
latter’s obligation with the consent of the creditor. This leads to the old debtor be released from his obligation.

II. Exercises / Learning Activities

A. Problem Analysis:

(1) Sarah had a deposit in a savings account with Filipino Universal Bank in the amount of P5,000,000. To buy
new car, she obtained a loan from the same bank in the amount of P1,200,000, payable in twelve monthly
instalments. Sarah issued in favour of the bank post-dated checks, each in the amount of P100,000 to cover
the twelve monthly installment payments. On the third, fourth and fifth months, the corresponding checks
bounced. The bank then declared the whole obligation due, and proceeded to deduct the amount of one
 million from Sarah’s deposit after notice to her that his a form of compensation allowed by law. Is the bank
correct? Why?

No, the bank is incorrect with respect to the amount of compensation, yet it is correct for the application
of compensation. According to Article 1279, In order for the compensation to be proper it should be: from par. 1,
that each one of the obligor be bound principally, and at the same time a principal and a creditor of the other and
from par. 3, which the both debt are due. In this case, the deposit made by Sarah is governed by loan contract and
the bank is the debtor for her deposit, and of the same time Sarah is also a debtor of the bank through loan, thus
there is a creditor and a debtor relationship which qualifies the compensation.

However, it is not lawful to compensate the amount which is not yet due. The only unpaid due were the third,
fourth, and fifth monthly installment. Therefore, the compensation should only in the amount of P300,000 and not
the whole obligation of Sarah.

(2) A, B, and C are jointly liable to D in the amount of P15,000. Subsequently, D assigned his credit to C in
consideration for goods sold by C to D. (a) Give the effect of the assignment. (b) What if the obligations of
the debtors is solidary, will your answer be the same? Why? (10 pts)

According to Article 1277, confusion does not extinguish a joint obligation. Since C, who is originally a joint
debtor, becomes the creditor, then A and B are now liable to him for their share of P5,000 each.

No, because according to Article 1277, merger in the person of one of solidary debtors shall extinguish the entire
obligation. Thus the solidary obligation of A, B and C to D is extinguished. However, C can still ask for reimbursement
from A and B of their share in the obligation of P5,000 each.

(3) Mr. A is indebted to Mr B. Mr C is the guarantor of Mr A in the latter’s obligation to Mr. B. Mr C is an heir of
Mr B. When Mr B died, Mr C inherited all the properties and credits of Mr B including his liability. What
happens? Is the obligation of Mr. B extinguished by confusion? Why? (5pts)

Mr. B has no obligation in the case due that he is the original creditor. However, Mr. A’s obligation is not
extinguished. Mr. A as being the debtor and Mr. B as the original creditor, due that Mr. B died, Mr. C as being the
guarantor but became the new creditor as a predecessor in interests of Mr. B. According to Article 1276 par. 2,
confusion which takes place in the person of any of the latter does not extinguish the obligation. If such rights are
acquired by the guarantor from either the debtor or the creditor; this only extinguishes the accessory obligation
(guaranty) but not the principal obligation. It is clear that Mr. A’s obligation to pay principal obligation subsists. Mr.
C now, as the new creditor, can demand payment from Mr. A.