SECTION 3- CONDONATION OF REMISSION OF DEBT
Presumption of implied remission- if the debt is not
Article 1270. Condonation or remission is essentially
gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.
One and the other kind shall be subject to the rules
which govern inofficious donations. Express condonation
shall, furthermore, comply with the forms of donation.
Condonation or remission- the gratuitous abandonment by
the creditor of his right against the debtor.
 Thus, it is a form of donation.
REQUISITES OF CONDONATION OR REMISSION:
1. It must be gratuitous
2. It must be accepted by the obligor
3. The parties must have the capacity
4. It must not be inofficious; and
5. If made expressly, it must comply with the forms of
donations.
KINDS OF REMISSION:
1. As to its extent:
a. COMPLETE- when it covers the entire obligation
b. PARTIAL- when it does not cover the entire
obligation
2. As to its form:
a. EXPRESS- when it is made either verbally or in
writing; or
b. IMPLIED- when it can only be inferred from
conduct
3. As to its date of effectivity:
a. INTER VIVOS- when it will take effect during the
lifetime of the donor; or
b. MORTIS CAUSA- when it will become effective
upon the death of the donor. It must comply
with the formalities of a will.
LEGITIME- that part of the testator’s property which he
cannot dispose of because the law has reserved it for certain
heirs (like children) who are, therefore called compulsory
heirs.
Article 1271. The delivery of a private document evidencing
a credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former had
against the latter.
If in order to nullify this waiver it should be claimed
to be inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt.
PRESUMPTION IN CASE OF VOLUNTARY DELIVERY OF
DOCUMENT OF INDEBTEDNESS BY CREDITOR:
1.
yet paid, the creditor would need the document to
enforce payment.
2. Contrary evidence- the presumption is prima facie or
rebuttable by the contrary evidence
3. Extent of remission- if the obligation is joint, the
presumption of remission pertains only to the share
of the debtor who is in possession of the document;
if solidary, to total obligation.
4. Presumption applicable only to private document- it
speaks of a private document. The legal presumption
of remission does not apply in the case of a public
document because it is easy to obtain a copy of the
same, being a public record.
ARTICLE 1272. Whenever the private document in
which the debt appears is found in the possession of the
debtor, it shall be presumed that the creditor delivered
it voluntarily, unless the contrary is proved.
PRESUMPTION IN CASE DOCUMENT FOUND IN
POSSESSION OF DEBTOR:
 If the document is later found in the hands of the
debtor and it is not known, the presumption is that
it was voluntarily delivered by the creditor and its
gives rise to the presumption of remission.
 It is believed however, that the presumption of
voluntary delivery should give rise to the
presumption of payment and only when it is known
that indeed there is no payment should be there be
a presumption of remission.
ARTICLE 1273. The renunciation of the principal debt
shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force.
It 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.
ARTICLE 1274. 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.
PRESUMPTION IN CASE THING PLEDGED FOUND IN
POSSESSION OF DEBTOR:
In a contract of pledge, it is necessary that the thing
pledged be placed in the possession of the creditor,
or of a third person by common agreement. A third
 person who is not a party to the principal obligation
may secure the latter by pledging his own property.
PLEDGE- is a contract by virtue of which the debtor
delivers to the creditor or to a third person movable or
instrument evidencing incorporeal rights for the purpose
of securing the fulfillment of a principal obligation.
SECTION 4. CONFUSION OR MERGER OF RIGHTS
ARTICLE 1275. The obligation is extinguished from the
time the characters of creditors and debtors are merged
in the same person.
CONFUSION/MERGER- the meeting in one person of the
qualities of creditor and debtor with respect to the same
obligation.
REASON OR BASIS FOR CONFUSION:
1. The law treats confusion or merger as a mode of
extinguishing obligation because if a debtor is his
own creditor, enforcement of the obligation
becomes absurd since a person cannot claim
payment from himself.
2. When there is a confusion of rights, the purposes for
which the obligation may have been created are
deemed realized.
REQUISITES OF CONFUSION
1. It must take place between the principal debt and
creditor
2. It must be complete
ARTICLE 1276. Merger which takes place in the person
of the principal debtor or credit or benefits the
guarantor.
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:
It extinguishes the obligation. Hence, the accessory
obligation of guaranty is also extinguished in
accordance with the principle that the accessory
follows the principal.
NOTE: Under Section 50 of the Negotiable Instruments
Law (Act No.2031), where an instrument is negotiated
back to a prior party, such party may reissue and further
negotiate the same. This may be considered as an
exception to the rule in Article 1275.
ARTICLE 1277. Confusion does not extinguish a joint
obligation except as regards the share corresponding to
the creditor or debtor in whom the two characters
occur.
CONFUSION IN JOINT OBLIGATION
Each debtor has his own creditor to whom he is liable
and confusion taking place in the person of any
debtor or creditor does not affect the others. In
other words, the confusion will extinguish only the
share corresponding to the creditor or debtor in
whom the two characters concur.
CONFUSION IN SOLIDARY OBLIGATION
Merger in the person of one of the solidary debtors
shall extinguish the ENTIRE obligation because it is
also a merger in the other solidary debtors.
He who makes payment may claim reimbursement
from his co-debtors for the shares which
corresponds to them.
SECTION 5- COMPENSATION
ARTICLE 1278. Compensation shall takes place when
two persons, in their own right, are creditors and
debtors of each other.
COMPENSATION- 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.
CONFUSION COMPENSATION
only one person who there are two person
is creditor and involved, each of
debtor of himself whom is a debtor and
creditor of the other
one obligation two obligations
there’s impossibility there is indirect
of payment payment
KINDS OF COMPENSATION
1. By its effect or extent:
a. TOTAL- when both obligations are of the same
amount and are entirely extinguished; or
b. PARTIAL- when the two obligations are of
different amounts and a balance remains.
2. By its cause or origin:
a. LEGAL- when it takes place by operation of law
even without the knowledge of the parties;
b. VOLUNTARY- when it takes place by agreement
of the parties;
 c. JUDICIAL- when it takes place by order from a
court in a litigation.
d. FACULTATIVE- when it can be set up only by one
of the parties.
ARTICLE 1279. In order that compensation may be
proper, it is necessary:
1. That each one 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 in due time to the debtor.
REQUISITES OF LEGAL COMPENSATION
1. The parties are principal creditors and principal
debtors of each other
2. Both debts consist in a sum of money, or of
consumable things of the same kind and quality
3. The two debts are due and demandable
4. The two debts are liquidated
5. No retention or controversy commenced by a third
person
ARTICLE 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up
compensation as regards what the creditor may owe
the principal debtor.
- It is exception to the general rule that only the
principal debtor can set up against his creditor what
the latter owes him. The guarantor is given the right
to set up compensation and the reason is that the
extinguishment of the principal obligation as a
consequence of compensation carries with it the
accessory obligations such as guaranty.
ARTICLE 1281. Compensation may be total or partial.
When the two debts are of the same amount, there is
a total compensation.
- Total compensation results when the two debts are
of the same amount. If they are of different amounts,
compensation is total as regard the smaller debts,
and partial only with respect to the larger debt.
ARTICLE 1282.The parties may agree upon the
compensation of debts which are not yet due.
- It is exception to the general rule that only debts
which are due and demandable can be
compensated.
VOLUNTARY/CONVENTIONAL COMPENSATION-
includes any compensation which takes place by
sagreement of the parties even if all the requisites for
legal compensations are not present.
- It has no special requisites and sufficient that the
contract of the parties, which declares the
compensation, is valid.
ARTICLE 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other,
the former may set it off by proving his right to said
damages and the amount thereof.
JUDICIAL COMPENSATION
- 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.
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.
Rescissible and voidable obligation are VALID until they
are judicially rescinded or avoided. Prior to rescission or
annulment, the debts may be compensated against each
other.
ARTICLE 1285.The debtor who has consented to the
assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the
compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor
at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him
but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the knowledge
of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he
had knowledge of the assignment.
WHERE COMPENSATION HAS TAKEN PLACE BEFORE
ASSIGNMENT
- The debts are extinguished to the concurrent
amount.
- If the extinguished debt is assigned by the creditor to
a third person, the debtor can raise the defense of
compensation with respect to the debt. The remedy
of the assignee is against the assignor. Of course, the
right to the compensation may be waived by the
debtor before or after the assignment.
WHERE COMPENSATION HAS TAKEN PLACE AFTER
ASSIGNMENT
Three cases of compensation after an assignment of
rights were made by the creditor:
1. Assignment with the consent of debtor
2. Assignment with the knowledge but without the
consent of debtor
3. Assignment without the knowledge of the debtor
ARTICLE 1286.Compensation takes place by operation
of law, even though the debts may be payable at
different place, but there shall be an indemnity for
expenses of exchange or transportation to the place of
payment.
COMPENSATION WHERE DEBTS PAYABLE AT DIFFERENT
PLACES
- It applies to legal compensation
- The indemnity contemplated above does, not refer
to the difference in the value of the things in their
respective places but to the expenses of monetary
exchange and expenses of transportation. Once
these expenses are liquidated, the debts also
become compensable. The indemnity shall be paid
by the person who raise the defense of
compensation.
Foreign exchange is the conversion of an amount of
money or currency of one country into an equivalent
amount of money or currency of another.
Exchange rate is the price of one currency expressed or
quoted in relation to another currency.
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.
Neither can compensation be set up against a
creditor who has a claim for support due by gratuitous
title, without prejudice to the provisions of paragraph 2
of Article 301.
ARTICLE 1288.Netheir shall there be compensation if
one of the debts consists in civil liability arising from a
penal offense.
INSTANCES WHEN LEGAL COMPENSATION IS NOT
ALLOWED BY LAW
1. Where one of the debts arises from a depositum
A deposit is constituted from the moment a person
receives a things belonging to another with the
obligation of safely keeping it and of returning the
same.
Art. 1287 uses “depositum” because it is really a
loan that creates the relationship of debtor and
creditor. However, “deposit” is used for ordinary
bank deposit. A bank deposit is not a depositum.
GENERAL RULE: A bank has a right to set off of the
deposits in its hands for the payment of any
indebtedness to it on the part of a depositor.
2. Where one of the debts arises from a commodatum
Commodatum is a gratuitous contract whereby
one of the parties delivers to another something
not consumable so that the latter may use the
same for a certain time and return it.
3. Where one of the debts arises from a claim for
support due by gratuitous title
4. Where one of the debts consists in civil liability
arising from a penal offense.
ARTICLE 1289.If a person should have against him
several debts which are susceptible of compensation,
the rules on the application of payments shall apply to
the order of the compensation.
RULES ON APPLICATION OF PAYMENTS APPLY TO
ORDER OF COMPENSATION
- If a debtor has various debts which are susceptible of
compensation, he must inform the creditor which of
them shall be the object of compensation. In case he
fails to do so, then the compensation shall be applied
to the most onerous obligations.
ARTICLE 1290.When all the requisites mentioned in
Article 1279 are presents, 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.
CONSENT OF PARTIES NOT REQUIRED IN LEGAL
COMPENSATION
1. Compensated takes place automatically by mere
operation of law
2. Full legal capacity of parties not required