Category: Section 2 – Loss of the Thing Due
there has been limitation of the generic object
Article 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)
Kung sakali’t ang obligasyon ay nauukol sa
tukoy na bagay ang mga ito ay mawawalang
bisa kung ito ay nasira ng walang kinalaman ang
umutang at hindi lumampas sa takdang
panahon ang kabayaran.Kung sakalit nakasaad
sa kasulatan na kahit dumating man ang hindi
inaasahang pangyayari ay kailangan bayaran
ang inutang kahit nasira man o mawala ang
kabayaran. Babayaran ng umutang ang bagay
na kabayaran kahit anuman ang mangyari.
Article 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)
Sa obligasyon na ihatid ang isang panlahat
(Generic) na uri ng bagay, ang pagkawala o ang
pagkasira ng ano mang magkaka- uri ay hindi
tumatapos ng obligasyon.
Discussion:
This Article is based from the principle that
“genus never perish” (genus nunguan perit).
The debtor can still be compelled to deliver a
thing of the same kind. The creditor, however,
cannot demand a thing superior quality neither
that a debtor deliver a thing of inferior quality.
If a generic thing is delimited, that is, where
to a particular group of things, the obligation is
extinguished by the loss of that particular group
from which the presentation has to be taken.
[ill. Jane, the obligor has committed to deliver
half ton of banana from her lakatan banana
tree, but the harvest was damaged by a pest. All
the trees and growing fruits were destroyed. he
obligation is extinguished. In effect when the
banana had been particularized, the object of
the obligation become determinate. Their loss
extinguishes the obligation.]
Article 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)
Ang Korte ang magsasaalam kung, sa ilalim ng
mga pangyayari, ang bahagi na pagkawala ng
bagay ng obligasyon ay mahalaga upang tuluyan
na mawala na ang obligasyon.
Illustration:
James is obliged himself to deliver to Jake a
specific race horse. The horse met an accident
as a result of which it suffered a broken leg. The
injury is permanent. Here, the partial loss is so
important as to extinguish the obligation.
If the loss is due to the fault of James, he shall
obliged to pay the value of the horse with
indemnity for damages.
If the horse to be delivered is to be slaughtered
by Jake, the injury is clearly not important. Even
if there was fault on the part of James, he can
still deliver the horse with liability for damages,
if any, suffered by Jake.
Article 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.
Kapag ang bagay ay nawala sa mga kamay ng
may utang, ito ay inaakalang nawala dulot ng
kanyang pagkakamali, maliban na lamang kung
may makakapagpatunay sa taliwas nito, nang
hindi nakakapinsala sa probisyon ng Artikulo
1165. Ang sapantahang nabanggit ay hindi
maaaring gamiting sa mga kaso ng lindol, baha,
bagyo, o anumang natural na kalamidad.
Discussion:
The presumption that the debtor is at fault if he
is in the possession of the thing which got lost is
rebuttable. Thus , the debtor may prove that he
was not at fault, but if he incurred delain in the
process or he had promised to deliver the thing
to two or more persons with different interests,
he will be liable even if the loss is due to
fortuitous events.
Furthermore, presumption does not apply in
cases of loss or destruction due to natural
calamity such as earthquake, flood, or storm. In
these cases, the debtor is generally not liable
due fortuitous events as discussed in Article
1174 in relation to Article 1262
Article 1268
When the debt of a thing certain and
determinate proceeds from a criminal offense,
the debtor shall not be exempted from the
payment of its price, whatever maybe the cause
for the loss, unless the thing having been
offered by him to the person who should
receive it, the latter refused without
justification to accept it.
Kung ang utang ay bagay na natutukoy o
determina ay nagmula sa kasong kriminal, ang
nangutang ay kailangan pa rin magbayad kahit
ano pa man ang kadahilanan ng pagkawala ng
bagay na ito. Maliban na lamang kung ibinibigay
na ito ng nangutang at hindi ito tinanggap ng
nagpautang ng walang nararapat na
pangangatwiran.
Discussion:
The article applies only to an obligation to
deliver a certain thing which is determinate,
and which the obligation arose out of the
commission of a criminal offense committed by
the debtor. If the thing is lost for whatever
reason the debtor shall pay for the value of the
thing.
If the obligor had offered or tendered the
delivery of the thing to the obligee, but the
latter had unjustifiably refused to accept it, and
the thing got lost, the former is not liable
anymore because the latter is in mora
accipiendi.
Article 1269
The obligation having been extinguished by the
loss of the thing, the creditor shall have all the
rights of action which the debtor may have
against third persons by reason of the loss.
(1186)
Kapag pagkakatiwala ang napagkasunduan, ang
nagpapautang ang may karapatang bumawi sa
nangutang, maaaring mawala sa kanya ang
karapatan sa anumang kagustuhan nya sa bagay
na ito. Ang kanyang mga kasamahang
nagpapautang, mga gumagarantiya at mga
tagapanagot ay magiging malaya.
Discussion
Although the obligation is extinguished by los of
a thing without the debtors fault, nevertheless,
whatever action the debtor may have against
the third person by reason of the loss
transferred to the creditor in order to safeguard
the interest of the latter. The right of action
includes the insurance indemnity that may have
been received from the third person.
Illustration
Severino obliged himself to deliver to apolinario
a specific carabao, without the permissio of
severino, his neighbor, pacifico took the
carabao and used the same foe plowing. Later
the carabao was lost through pacifico’s fault.
Severino’s obligation was extinguished. But
apolinario acquired the right to file an action
against pacifico to recover the price of carabao.
Category: Section 3: Condonation or Remission
of Debt
Article 1270
Condonation or remission is essentially
gratuitous, and requires the acceptance by the
obligor. It may be made expressly or impliedly.
Ang “condonation” ay isang pagpapatawad ng
nagpautang sa umutang ito ay tinataguring
isang pabuya sa isang tao at kinakailangan
naman ng pagtanggap ng dapat na siyang
magbayad. Ito ay pwede ipakita sa
pamamagitan pahiwatig o pahayag.
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. (1188)
Ang paghahatid o pagdadala ng pribadong
dokumento na nagpapatunay sa isang
pagkakautang na ginawang boluntaryo ng
nagpautang sa nangutang, ay pinababatid ng
pagtatakwil ng karapatan ng mga ginawa ng
nangutang sa kanya.
Kung para maipawalang bisa ang pagtatakwil ng
karapatan kailangang angkinin na inofficious ito,
ang nangutang at ang kanyang tagapagmana ay
maaaring sang-ayunan ito sa pamamagtan ng
pagbibigay na ang inihatid na dokumento ay
ginawa sa kabutihan ng pagbabayad ng utang.
Discussion:
Presumption in case of voluntary delivery of
indebtedness by creditor:
1)Pressumption of implied remission – the
article gives an example of implied or tacit
remission. If the debt is not yet paid, the
creditor would need the document to enforce
payment. In case he voluntarily delivers it to he
debtor, the only logical interference is that he is
renouncing his right.
2)Contrary Evidence – The pressumption is
prima facieor rebuttable by contrary evidence.
Evidence is admissible to show otherwise, as
when a receipt signed by the creditor was
delivered only for examination by the debtor
client (lawyer) of the amount of attorney’s fee
to be paid by the latter.
3)Extent of remission – If the obligation is joint,
the pressumption of remission partains only to
the share of the debtor who is in possession of
the document; if solidary, to the total
obligation.
4)Presumption applicable only to private
document – Article 1271 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
Under second paragraph of Article 1271, the
renunciation of the action which the creditor
had against the debtor maybe nullified or
invalidate by showing that the waiver is
inofficious. In other words the remission
becomes null and void upon proof that it is
inofficious.
The debtor and his heirs may prove that the
delivery of the document was really made in
virtue of payment of the debt and not
remission.
**no case cited
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. (1189)
Kung sakaling ang pribadong dokumento na
kung saan na ang utang ay nakita at natagpuan
sa pangangalaga ng nangutang, nandoon ang
pag-aakala na ang nagpautang ay dinala nya ito
ng kusang loob, maliban na lamang na ito ay
nagpapatunay na sumasalungat.
Example:
Kristine owe Karen P20,000.00 evidenced by a
promissory note. The note, signed by Kristine, is
given to Karen.
If the promissory note is voluntary delivered to
Kristine, the presumption is that the debt must
have been remitted by Kristine.
If it is known that Kristine has not yet paid
Karen, it must be presumed that the obligation
has been remitted by Karen.
Suppose it is not known how Kristine came into
possession of the promissory note. The
presumption is that it was voluntarily delivered
by Karen, unless Karen proves the contrary.
(Art. 1272)
Remission is an act of liberality by virtue of
which the obligee, without receiving any price
or equivalent, renounces the enforcement of
the obligation, as a result of which it is
extinguished in its entirety or in that part or
aspect of the same to which the remission
refers.
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.
Ang pagtatakwil ng kabayaran sa prinsipal na
utang ay makakapagpawalang bisa sa
obligasyong aksesoryal. Ngunit ang pag-waive
ng obligasyong aksesoryal ay hindi
nangangahulugang wala nang bisa ang prinsipal
na utang.
Discussion:
The accessory obligation is extinguished once
the principal debt is remitted, because the
existence of the accessory obligation is
dependent upon the existence of the principal
obligation.
On the other hand, if the accessory obligation
alone is extinguished, the principal obligation
remains, because the existence of the principal
obligation is not dependent upon the accessory
obligation.
Illustrations:
Remission of principal debt, effect on accessory
obligation
Pedro borrowed money from Juan, Maria
guaranteed the payment of the loan. Juan
remitted the entire obligation of Pedro. THis
remission extinguishes the whole obligation.
Remission of the accessory Obligation
Pedro borrowed money from Juan. To secure
the loan, Maria was convinced to mortgage his
property to Juan. If Juan released the mortgage
by remission, Maria’s property is freed from the
obligation. But the principal obligation of Pedro
which is the loan, shall remain without any
collateral or security.
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.
Maipapalagay na ang acessory obligation ng
isang pledge ay naibalik kung, pagkatapos itong
ibigay sa inutangan, ito ay nasa poder ng
nangutan, o sa taong nagmamay-ari nito.
Discussion:
Pledge is a contract by virtue of which the
debtor delivers to the creditor or to a third
person a movable, or document evidencing
incorporeal rights, for the purpose of
securing the fulfillment of a principal
obligation with the understanding that
when the obligation is fulfilled, the thing
delivered shall be returned with all its fruits
and accessions.
If the pledge was found in the possession of the
debtor, or of the third person who owns the
thing, the presumption is that the pledge, as an
accessory obligation, has been remitted.
However, this presumption can be rebutted by
the creditor if he proves that the thing is stolen,
returned for repairs, etc., in which case, there
shall be no remission.
Remission is an act of liberty, by virtue of which
the obligee, without receiving any price or
equivalent renounces the enforcement of the
obligation, as a result of which it is extinguished
in its entirety or in that part or aspect of the
same to which the remission refers. Simply put,
it is the gratuitous abandonment by the creditor
of his right.
Illustration:
Jay and Zola are friends. Jay borrowed money
from Zola. However, Zola’s wife is stingy. To
appease his wife, Jay and Zola made a written
contract stipulating that Jay’s motorcycle will be
used by Zola until the money borrowed is
returned, which Zola presented to his wife. His
wife allowed Zola to lend Jay the money and the
motorcycle was delivered to Zola. However,
since they are friends, Zola let Jay borrow the
motorcycle often, until the time that the
motorcycle was exclusively used by Jay. It is
therefore presumed that the motorcycle is
remitted until Zola rebuts such presumption.
Category: Section 4 – Confusion or Merger of
Rights
Article 1275
The obligation is extinguished from the time the
characters of creditor and debtor are merged in
the same person.
Ang obligasyon ay mawawala simula sa oras na
kung saan ang character ng nagpautang at ng
nangutang ay nagsama sa isang tao.
Dicussion: Article 1277

Requisites for Confusion or Merger of Right
There is a merger in the same person of the
characters of a creditor and a debtor.
The merger must be in the characters of a
principal creditor and a principal debtor.
The merger is definite and complete. Partial
merger is allowed. It is definite and complete up
to the extent of the concurrent amount or
value.
Article 1276
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.
Ang pag-iisa o pagsasanib ng prinsipal na
nangutang at nagpautang ay ika-papakinabang
ng tagapanagot. Ang pag-iisa o pagsasanib ng
tagapanagot ay hindi maaaring makapagpa-
walang bisa o makapag-wala ng obligasyon.
Discussion:
Confusion does not extinguish a joint obligation
except as regards the share corresponding to
the creditor or debtor in whom the two
characters concur. (1194)
Hindi mapapawalang bisa ang joint obligation
ng pagsasanib ng karakter ng nagpautang at
umutang, maliban sa mga bahagi na may pag-
aari o na napataw sa mga karakter na ito.
DISCUSSION
Joint Obligation, Concept; Distinguished From
Solidary Obligation
In joint obligation there are two or more
debtors or creditors, where debtor is liable for a
proportion of debt and creditor is entitled to a
part of a credit.
ILLUSTRATION:
Rara and Debi owed P 2 M from Frank. Rara and
Debi had an agreement that Rara will pay the
whole P 2 M to Frank. That extinguishes Debi’s
obligation to Frank. However, Debi will be liable
to pay P 1 M To Rara.

Two kinds of merger:

Merger in the person of the principal debtor or

principal creditor;

Merger in the person of the guarantor. Category: Section 5 – Compensation

The first merger results in the extinguishment of Article 1278

the guaranty because the latter is just an
Compensation shall take place when two
accessory obligation. When the principal
persons, in their own right, are creditors and
obligation is extinguished, the accessory
debtors of each other. (1195)
obligation is also extinguished. Thus, the law
says, the confusion benefits the guarantor.

Ang kabayaran ay mangyayari sa dalawang tao

ayon sa kanilang mga karapatan kung sino ang
The second merger will not extinguish the
nagpautang at sino ang umutang.
principal obligation because the efficacy of the
principal obligation is not dependent upon the Article 1279
accessory obligation.
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. (1196)
Para ang kompensasyon ay nararapat, dpat ito
ay :
Upang maging wasto ang compensation,
kinakailangan na:
(1) Bawat isa sa mga may utang ay obligado
principally, at na siya din ang principal creditor
nung isa;
(2) Kung ang parehong utang ay binubuo ng
kabuuan ng pera, o ang bagay na dapat ibigay
ay inilaan upang gamitin, na pareho sila ng uri,
at pareho din sila ng kalidad kung ang nahuli ay
nakasaad;
(3) Kung ang dalawang utang ay dapat nang
bayaran;
(4) Na ito ay liquidated at hinihingi
(5) Na wala sinuman sa mga ito mayroong
anumang mga pagpapanatili o kontrobersya, na
nagsimula sa pamamagitan ng ikatlong tao at
nakipag-ugnayan sa angkop na panahon sa may
utang. (1196)
Discussion:
Article 1270 enumerates the requirements or
requisites for legal compensation as follows:
1.“That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other” – that parties be
mutual creditor and debtor of each other and
their relationship is a principal one, that is, they
are principal debtor and creditor of each other.
2.“That both debts consist in a sum of money,
or the thing due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated”. – When the debts
consist of a money, there is not much of a
problem when it comes to compensation to the
concurrent amount. It is a matter of
mathematical computation.
3.“That the 2 debts are due” – The law does not
require that the parties obligations be incurred
at the same time, what the law requires only is
that the obligations be due and demandable at
the same time.
4.“That they be liquidated and demandable” – A
debt is considered liquidated when its amount
is clearly fixed. It is unliquidated when the
amount is not fixed because it is still subject to
a dispute or to a certain condition
5.“That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due to the
debtor” – A debt or a thing cannot be subject of
compensation if the same had been the subject
of a garnishment of which the debtor was
timely notified. When a credit or property had
been properly garnished or attached, it is placed
under a custodia legis. this means it cannot be
disposed of without the approval of the court.
Consequently, compensation cannot operate
because a third party is already involved whose
claim will be determined by the court
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. (1197)
Bagaman ang probisyon ng nauuna na artikulo,
ang tagapanagot ay maaaring mag lagay ng
sahod/bayad na magpalagay kung ang
nagpautang kung may utang sa pangunahing
nangutang.
Article 1281
Compensation may be total or partial. When
the two debts are of the same amount, there is
a total compensation.
Ang kabayaran ay maaaring buo o bahagya.
Kapag ang dalawang utang ay pareho ng halaga,
ang kabayaran ay buo.
Illustrations:
Total Compensation
Juan and Pedro are good friends. One day, Juan
borrowed P100 from Pedro to buy some
groceries. The following day, while they were
eating at a restaurant, Pedro realized he left his
wallet in the car and borrowed P100 from Juan.
Juan and Pedro became both debtors and
creditors. Since their debts are of the same
amount (P100), the compensation is total.
Partial Compensation
Juan and Pedro are good friends. One day, Juan
borrowed P100 from Pedro to buy some
groceries. The following day, while they were
eating at a restaurant, Pedro realized he left his
wallet in the car and borrowed P80 from Juan.
Juan and Pedro became both debtors and
creditors. Since their debts are not of the same
amount (P100), the compensation is partial.
The balance of P20 remains an obligation.
Article 1282
The parties may agree upon the compensation
of debts which are not yet due.
Ang mga partido ay maaring magkasundo sa
kompesasyon ng utang na hindi pa kailangang
bayaran.
Discussion:
As a general rule, compensation becomes
effective when both mutual debts are due. This
provision is an exception to the rule.
Case Illustration: Traders Royal Bank vs.
Norberto Castañares and Milagros Castañares
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.
Kung ang isa sa mga partido sa suit over sa
obligasyon ay nagsad ng danyos/pinsala laban
sa iba, maari nya itong ipatigil sa pamamagitan
ng pagpapatunay ng kanyang karapatan sa
nasabing danyos/pinsala at ang halaga nito.
Difference between Compensation and Set-off
or Counterclaim
Compensation – take place by mere operation
of law and extinguishes reciprocally the two
debts as soon as they exist simultaneously,
while
Set-off or Counterclaim – must be pleaded to be
effectual.
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.
Kapag ang isa o parehong mga utang ay
maaaring ikansela o ipawalang bisa, maaari
nilang bayaran ang bawat isa bago pa man ito
ipawalang bisa o kanselahin ng hukuman. (n)
Discussion:
Before rescissible or voidable debts are
judicially rescinded or annulled, they are valid
debts. The parties may opt not to rescind or
annul them. Consequently, until they shall have
been judicially declared void, they can be
compensated against each other.
If the prescriptive period for the rescission or
annulment of the debts had already lapsed,
there is automatic compensation and the same
will not disturbed anymore.
In other cases, if the debt is rescinded or
annulled, the compensation is also
automatically cancelled and there shall be
restitution of what each party had received
before the rescission or annulment.
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. (1198a)
Ang may utang na pumayag sa pagtatalaga ng
mga karapatan na ginawa ng isang
pinagkakautangan na pabor sa isang ikatlong
tao, ay hindi maaaring mag-set up ng
compensation laban sa assignee na maaaring
tumukoy sa kanya laban sa assignor, maliban
kung ang assignor ay naabisuhan ng may utang
sa panahon na ibinigay niya ang kanyang
pahintulot, na inereserba niya ang kanyang
karapatan sa compensation.
Kung ang pinagkakautangan
nakipagkomunikasyon sa kanya tungkol sa
cession ngunit ang may utang ay hindi
sumasang-ayon, ang may utang ay maaaring
mag set up ng compensation ng mga utang na
nauna sa cession, ngunit hindi sa kasunod na
mga bago
Kung ang pagtatalaga ay ginawa nang hindi
alam ng may utang, maaari niyang i-set up ng
lahat ng mga credit bago ang parehong nauna
at sa iba pang susunod hanggang sa siya ay
magkaroon ng kaalaman tungkol sa pagtatalaga.
(1198a)
Illustration:
Tina owes Ralph php 5000, Ralph in turn owes
Tina 3000. at maturity the two debts are
unpaid, subsequently Ralph with the consent of
tina, assign his Credit Franco.Can Franco collect
from tina the whole amount of p5000? yes
because tina cannot set up the defense of
compensation as to the 3000 by reason of
consent to the assignment. supposing tina
reserve her right to compensation when pulido
makes assignment to franco, can tina put up the
defense of compensation with respect to the
php 3000? yes, she can compelled to pay only
3000.
Article 1286
Compensation takes place by operation 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. (1199a)
Ang kabayaran ay nangyayari sa pamagitan ng
batas kahit na ito ay bayaran sa ibang lugar
ngunit kinakailangan magkaroon ng kabayaran
ang pagdadala nito sa ibang lugarbilang
kabayaran sa transportasyon.
Illustration:
Si Pedro na taga Sta. Maria, Laguna ay may
umutang kay Juan na taga Siniloan ng halagang
sampung libong piso ngunit dahilan sa nawalan
siya ng pambayad sa takdang panahon sinabi ni
Pedro kay Juan na kabayo na lang ang ibabayad
niya. Si Pedro bilang siyang umutang ang siyang
magbabayad ng upa sa taong magdadala sa Sta
Maria ng kabayo.
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. (1200a)
Ang kompensasyon ay hindi tama kung ang isa
sa utang ay nagmula sa depositum o mula sa
obligasyon ng ng depositarya or ng bailee in
commodatum.
Hindi rin maaari na ang kompensasyon ay
ayusin laban sa isang inutangan na may
karapatan para sa suportang angkop dahil sa
gratuitous na titulo, nang walang pagkiling sa
mga probisyon ng talata 2 ng Artikulo 301.
(1200a)
Compensation not allowed by Law:
1)Where one the debts arises from a depositum
– A deposit is constituted from the moment a
person receives a thing belonging to another
with the obligation of safety keeping it and
returning the same (Art 1962)
Article 1287 uses the “depositum instead of
“deposit” which is used for an ordinary bank
deposit. A bank deposit is not a depositum as
defined above. It is really a loan which creates
the relationship of debtor and creditor. A
bank’s failure to honor a deposit of money is
failure to pay its obligations debtor and not a
breach of trust arising from depositary’s failure
to return the thing deposited.
2)Where one of the debts arises from a comma
datum (is a gratuitous contract whereby of the
parties delivers to another something not
consumable so that the latter may use for a
certain time and return it. Art 1933)
3)Where one of the debt arises from a claim for
support due by gratuitous title. – “Support
comprises everything that is indispensable for
sustenance, dwelling, clothing, medical
attendance, education and transportation, in
keeping with the financial capacity of the family
xxx” (Art 194, family Code)
4)”Where one of the debts consists in civil
liability arising from a penal offense” – “If one
of the debts consist in civil liability arising from
a criminal offense, compensation would be
improper and inadvisable because the
satisfaction of such obligation is imperative.”
(Report of the Code Commission, p. 134)
Article 1288
Neither shall there be compensation if one of
the debts consists in civil liability arising from a
penal offense. (n)
Alinma’y hindi ay maaaring mayroong sahod
kung isa sa mga utang ay may nilalaman na sibil
na pananagutan na maaaring magkaroon ng
penal na kasalanan.
Discussion:
1. Non-Compensation if One Debt Arises from a
Crime
Reason for the provision:
“If one of the debts consist in civil liability
arising from a penal offense, compensation
would be improper and inadvisable because the
satisfaction of such obligaton is imperative.”
(Report of the Code Commission, p. 134)
2. But Victim Can Claim Compensation
It is clear that the criminal cannot claim
compensation.
How about the victim?
He should be allowed. Justice J.B.L. Reyes says:
“This should be specifically limited to the
accused to prevent his escaping liability by
pleading prior credits against the offended
party. But not to the victim of a crime who
happens to indebted to the accused.”
(observation on the new Civil Code, Justice J.B.L.
Reyes, Lawyer’s Journal, Jan. 31, 1951).
(This is again another instance of FACULTATIVE
COMPENSATION.)
Article 1289
If a person should have against him several
debts which are susceptible of (sic)
compensation, the rules on the application of
payments shall apply to the order of the
compensation. (1201)
Kung ang tao ay may maraming utang na
bayarin na sakop ng compensation, ang
patakaran para sa aplikasyon ng kabayaran ay
gagamitin na naaayon sa pagkakasunuran ng
compensation.
Discussion:
Article 1289 is applicable to a debtor who have
several debts to one creditor, and vice versa.
Under such circumstances, Articles 1252 to
1254 (on application of payments) shall apply.
Article 1290
When all the requisites mentioned in Art. 1279
are present, 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.
Kung lahat ng kailangan na naisaad sa Artikulo
1279 ay naroon, ang kompesasyon ay
magkakaroon ng bisa dahil sa batas, at
buburahin ang utang ng magkabilang partido,
kahit na ang mga nangutang at nagpautang ay
hindi batid ang kompesasyon.
Discussion:
This provision talks about the moment
compensation takes effect in legal
compensation. In contrast to voluntary
compensation where compensation takes effect
from the time agreed upon by the parties, or
judicial compensation where compensation
takes effect from the moment judgement
becomes final and executory, legal
compensation takes effect only when the
following requisites are present:
1.Each one of the obligors are bound
principally, and that the obligors are at the
same time creditors of each other.
2.Both debts consists in a sum of money, or if
the things due are consumable, they are of the
same kind, and also of the same quality if the
latter has been stated.
3.That both debts are due.
4.That both debts are liquidated and
demandable.
5.That both debts are not subject retention or
controversy commenced by third parties and
communicated in due time to the debtor.
Case Illustration:
BPI vs CA G.R. No. 116792 (1996)
Ponente: J. Puno
Facts:
Edvin Reyes opened two joint savings accounts
at the Bank of the Philippine Islands, one with
his wife and the other with his grandmother,
where he regularly deposited the U.S. Treasury
Warrants payable to the order of his
grandmother as her monthly pension.
Three days prior to the grandmother’s death, a
check was sent by the U.S. Treasury. When it
was sent to the U.S. for clearing, the treasury
dishonored it as it was discovered that the
grandmother died 3 days prior to its issuance.
The BPI then contacted Reyes, and he gave
verbal authorization to debit it from his
account.
Thereafter, however, Reyes demanded from the
bank the reinstitution of the debited amount, in
a suit for Damages filed before the RTC of
Quezon City, Branch 79. BPI counterclaimed for
moral and exemplary damages. The court
dismissed the case for lack of cause of action.
On appeal, however, the Court of Appeals
reversed the decision. Hence, this petition
seeking a review of the decision.
Issue: Whether or not compensation must be
made by BPI.
Held:
No.
Compensation shall take place when two
persons, in their own right, are creditors and
debtors of each other. Article 1290 of the New
Civil Code provides that “When all the requisites
mentioned in Art. 1279 are present,
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.” Legal
compensation operates even against the will of
the interested parties even without the consent
of them. Since the compensation takes place
ipso jure, its effect arise on the very day on
which all its requisites concur. When used as a
defense, it retroacts to the date when its
requisites are fulfilled.
Article 1279 stats that 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.
The elements of legal compensation are all
present in the case at bar. The obligors bound
principally are at the same time creditors of
each other. BPI stands as debtor of Reyes, a
depositor. At the same time, BPI is the creditor
of Reyes with respect to the dishonored U.S.
Treasury Warrant which Reyes illegally
transferred to his joint account. The debts
involved consist of a sum of money. They are
due, liquidated, and demandable. They are not
claimed by a third person.
Category: Section 6 – Novation
Article 1291
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.
Ang obligasyon ay maaring mabago ng:
1.Pagbabago ng bagay o ng pangunahing
kondisyon;
2.Paglilipat ng tao ng nangutang;
3.Pagpapalit ng ikatatlong tao sa karapatan ng
nagutang.
Discussion:
Kinds of Novation
A . As to their essence:
1. Objective or Real novation – effected by
changing the object or principal conditions of
the obligation.
2. Subjective or Personal novation – effected by:
a. Objective or Real novation – effected by
changing the object or principal conditions of
the obligation.
b. Subjective or Personal novation – effected by:
b1. Substituting the person of the debtor
(passive novation) or
b2. Subrogating a third person to the rights of
the creditor. (active novation)
3. Mixed novation – arises when there is a
combination of the objective and subjective
novations.
B. As to the form of their constitution:
1. Express- when the parties declared in
unequivocal terms that the old obligation is
extinguished by the new obligation.
2. Implied – when there are no express
declaration that the old obligation is
extinguished by the new one.
C. As to the extent of their effects:
1. Total or Extinctive – when the original
obligation is completely extinguished. There is
no novation when the new contract is not
between the same parties as in the old
contract.
Four (4) requisites of Extinctive Novation
1. The existence of a previous valid obligation;
2. The agreement of all the parties to the new
contract;
3. The extinguishment of the old obligation or
contract; and,
4. The validity of new one.
2. Partial or Modificatory – when the original
obligation is not totally extinguished but merely
modified.
D. As to their origin:
1. Legal Novation – takes place by operation of
law.
2. Conventional Novation – takes place by
agreement of the parties.
E. As to presence or absence of condition:
1. Pure – when the creation of new obligation is
not subject to any condition.
2. Conditional – when the creation of new
obligation is subject to a condition.
Article 1292
In order that an obligation may be extinguished
by another which substitute the same, it is
imperative that it be so declared in unequivocal
(hindi malinaw) terms, or that the old and the
new obligations be on every point incompatible
with each other.
Upang ang isang obligasyon ay maaaring
matapos sa na papalit sa pareho, ito ay hindi
maiiwasan na ito ay ipinahayag sa madaling
termino, o na ang luma at bagong mga
obligasyon maging sa bawat punto na hindi
tugma sa bawat isa. (1204)
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 the rights mentioned in
Articles 1236 and 1237. (1205a)
Ang novation na binubuo ng pagpapalit ng
bagong may utang sa katayuan ng orihinal, ay
maaaring gawin kahit na hindi alam o labag sa
loob ng huli, ngunit hindi nang walang
pahintulot ng pinagkakautangan. Ang
pagbabayad ng bagong may utang ay
nagbibigay sa kanya ng mga karapatan na
nabanggit sa Artikulo 1236 at 1237. (1205a)
Case Illustration: Magdalena State v Antonio&
Herminia Rodriguez (Art 1293-JNR)
Article 1294
If the substitution is without the knowledge or
against the will of the debtor, the new debtor’s
insolvency or non-fulfillment of the obligations
shall not give rise to any liability on the part of
the original debtor. (n)
Kung ang kapalit ng obligasyon ay nangyari na
wala sa kaalaman ng umutang o salungat sa
kagustuhan ng umutang, ang di pagbabayad ng
bagong umutang ay hindi pagsisimulan ng isang
pananagutan ng dating umutang.
Illustration:
A loaned to B in the amount of 5 thousand
pesos, C who is related to A by affinity added a
loan of 5 thousand without the knowledge and
affirmation of A. The loan of C to B should not
affect the loan of A to B. It is C who is liable to B
for his additional loan of 5 thousand pesos.
Article 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 the delegated his debt.
(1206a)
Ang kawalan ng pambayad ng bagong may
utang na iminungkahi ng orihinal na may utang
at tinanggap ng nagpautang , ay hindi buhayin
ang ginawa ng nagpautang laban sa orihinal na
may utang, maliban kung ang nasabing kawalan
ng pambayad ay umiiral na at alam na ng
publiko, o kaya ay alam na ng may utang nuong
itinalaga nya ang kanyang utang.
Discussion:
This article applies only to delegacion – where
the substitution of the old debtor is upon the
proposal of the old debtor himself (delegante)
and the proposal was accepted by the new
debtor (delegado) and the creditor (delegatario)
If the new debtor , who has been accepted by
the creditor, happens to be insolvent and
cannot fulfill the obligation delegated to him,
the original debtor is no longer liable anymore
for the payment of the obligation.
Exceptions:
1)If the insolvency was already existing and is of
public knowledge when the debt was delegated
to the new debtor ; or
2)If the insolvency of the new debtor was
already existing and known to the original
original debtor at the time of the delegation of
the debt to the new debtor (Art 1295)
Circumstances Which Do Not Give Rise to
Novation by Delegacion:
1)When the third person acted merely as surety
or guarantor for the original debtor
2)When the third person is merey an agent of
the debtor;
3)When the new debtor merely agreed to
assume a joint responsibility for the obligation.
The delegacion is only with the reference to the
proportionate share
Article 1296
Article.1296 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. (1207)
Kung ang pangunahing obligasyon ay tuluyan ng
nawala bunga ng nobasyon, ang mga dagdag sa
obligasyon ay maaaring magpatuloy lamang
kung gaano na ang maaring pakinabangan ng
mga taong na kung saan ay hindi nila binigay
ang kanilang pahintulot.
Article 1297
If the new obligation is void, the original one
shall subsist, unless the parties intended that
the former relations should be extinguished in
any event.
Kung ang bagong obligasyon ay walang bisa, ang
orihinal obligasyon ang syang magpapatuloy,
maliban na lamang kung ang bawat partido ay
ninais na ang naunang relasyon ay tatapusin ng
anumang kaganapan.
Discussion:
Two-fold Purpose of Novation:
1.) To extinguish an old obligation
2.) To create a new one to substitute for the old
one
If the new obligation is void, there is no new
obligation to supersede the old one.
Exception: If there is an agreement between the
parties that even if the new obligation is invalid,
the old obligation shall still be extinguished in
any, event, then the said obligation shall be
extinguished. This is equivalent to waiver or
remission of the obligation.
Effect of a new obligation which is merely
voidable:
When the new obligation is voidable —
meaning it remains to be valid and binding until
it is annulled, then the old obligation is novated.
However, if the new obligation is annulled, the
old obligation shall subsist and the novation
shall be set aside.
Article 1298
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.
Ang novation ay walang bisa kung ang orihinal
na obligasyon ay walang bisa, maliban lamang
kung ito ay ipapawalang bisa ng nangutang, o
kung ang pagpapatibay ay gagawing may bisa
ang mga gawang voidable.
Discussion:
(Note: This provision is contradictory. As a
solution, it should be interpreted whereby the
first portion applies to void obligations while
the second applies to voidable obligations.)
If the old obligation is void, the new obligation
shall also be void since a void contract or
obligation does not exist and it is not subject to
ratification. If the obligation is voidable, the
new obligation is valid and binding upon the
parties until it is annulled. Before it is annulled,
it can novate the old valid obligation.
Prescribed debts can be the cause or
consideration for a new obligation in novation.
Case Illustration:
Villarroel vs Estrada 71 Phil 140 (1940)
Ponente: J. Avanceña
Facts:
The mother of the John Villarroel owed money
from the spouses Estrada in the amount of
P1,000 payable after 7 years. When the spouses
Estrada died, leaving as sole heir Bernandino
Estrada, Villaroel was made to sign a document
regarding the debt. Estrada then instituted an
action to recover the P1,000 debt. The CFO of
Laguna decided in favor of Estrada, condemning
Villarroel to pay the full amount with legal
interest of 12% per year. Villaroel appealed.
Issue: Whether or not, even if the original debt
has already prescribed, Estrada still has the
right to recover.
Held:
Yes.
As a general rule, if the debt has already
prescribed, it can no longer be recovered.
However, in the case at bar, there was a
novation by the parties, whereby Villarroel
agreed to assume the fulfillment of the
obligation. As a prescribed debt constitutes a
moral or natural obligation as such, it can be
the cause or consideration for a new obligation
in novation. Prescription must be set up as a
defense by the debtor in the complaint against
him if he does not want to be bound anymore
under the obligation. Otherwise, the obligation
shall continue to subsist. The failure to put up
prescription as a defense is equivalent to
waiver.
In the case at bar, there was already a novation
when Villarroel agreed to resume the obligation
of his mother in law. Hence, he can no longer
put up prescription as a defense.
Article 1299
If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same condition,
unless it is otherwise stipulated.
Kapag ang orihinal na obligasyon ay subject sa
suspensive o sa resolutory na kondisyon, ang
bagong obligasyon ay dapat nakailalim sa
parehong kondisyon, maliban kung ito ay
stipulated.
*When we say subject to suspensive condition,
it will give rise to the obligation while in the
resolutory condition it will extinguished the
obligation.
Article 1300
Subrogation of a third person in the rights of
the creditor is either legal or conventional. The
former is not presumed, except in cases
expressly mentioned in this Code; the latter
must be clearly established in order that it may
take effect.
Ang subrogation ng ikatlong tao sa mga
karapatan ng nagpautang ay maaaring legal o
konbensyonal. Ang nauna ay hindi
ipinapagpalagay, maliban sa mga kaso na
malinaw na nabanggit sa Code na ito; ang nahuli
ay dapat na malinaw na itinatag upang ito ay
magkabisa. (1209a)
Subrogation is the active subjective novation
characterized by the transfer to a third person
of all the rights pertaining to the creditor in the
transaction concerned including the right to
proceed against the guarantors or possessor of
mortgages, and similar other subject to any
applicable legal provisions or any stipulation
agreed upon by the parties in conventional
subrogation.
It is the transfer of the credit of the creditor
arising in a transaction, to a third person with
all the rights appertaining thereto, either
against the debtor or against third persons.
Subrogation is designed to promote and
accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a
debt by one who in justice and good conscience
ought to pay.
Kinds of subrogation (or Active Subject
Novation)
As to their creation
1.Legal subrogation
2.Voluntary or conventional subrogation
As to their extent
1.Total subrogation
2.Partial subrogation
Legal subrogation is not presumed except in the
cases mentioned in the law. Voluntary
subrogation must be clearly established with
sufficient evidence, otherwise, its existence will
not be sustained.
Article 1301
Conventional subrogation of a third person
requires the consent of the original parties and
of the third person. (n)
Ang conventional na subrogation ng ikatlong
tao ay kaylangan magbigay ng pahintulot ang
orihinal na mga partido at ng ikatlong tao.
Case Illustration:
FACTS
Licaros, after having invested in Anglo-Asean,
encountered tremendous and unexplained
difficulties in retrieving, not only the interest or
profits, but even the very investments he had
put in Anglo-Asea
Confronted with the dire prospect of not getting
back any of his investments, Licaros then decide
to seek the counsel of Antonio P. Gatmaitan, a
reputable banker and investment manager who
had been extending managerial, financial and
investment consultancy services to various
firms and corporations both here and abroad.
To Licaros’ relief, Gatmaitan was only too
willing enough to help. Gatmaitan voluntarily
offered to assume the payment of Anglo-
Asean’s indebtedness to Licaros subject to
certain terms and conditions.
Thereafter, Gatmaitan presented to Anglo-
Asean the Memorandum of Agreement earlier
executed by him and Licaros for the purpose of
collecting the latter’s placement thereat of U.S.
$150,000.00. Albeit the officers of Anglo-Asean
allegedly committed themselves to “look into
[this matter]”, no formal response was ever
made by said bank to either Licaros or
Gatmaitan. To date, Anglo-Asean has not acted
on Gatmaitan’s monetary claims.
Evidently, because of his inability to collect from
Anglo-Asean, Gatmaitan did not bother
anymore to make good his promise to pay
Licaros the amount stated in his promissory
note (Exh. “A”; also Exh. 2″). Licaros, however,
thought differently. He felt that he had a right
to collect on the basis of the promissory note
regardless of the outcome of Gatmaitan’s
recovery efforts. Thus, in July, 1996, Licaros,
thru counsel, addressed successive demand
letters to Gatmaitan (Exhs. “C” and “D”),
demanding payment of the later’s obligations
under the promissory note. Gatmaitan,
however, did not accede to these demands.
ISSUES
Whether the Memorandum of Agreement
between petitioner and respondent is one of
assignment of credit or one of conventional
subrogation?
Whether or not respondent became liable to
rhe petitioner?
HELD
We agree with the finding of the Court of
Appeals that the Memorandum of Agreement
dated July 29, 1988 was in the nature of a
conventional subrogation which requires the
consent of the debtor, Anglo-Asean Bank, for its
validity.
The respondent is not liable to the petitioner.
Article 1302
It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who
is preferred, even without the debtor’s
knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
(3) 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.
(1210a)
Discussion:
Subrogation means the substitution of one
claim for another, especially the transfer of the
right to receive payment of a debt to somebody
other than the original. Based on article 1302
the third person may pay the amount the
obligation of a debtor to the creditor even
without his knowledge, in the Case of Gaysano
vs. North American Insurance, Gaysano
declined to pay his debt to Levis International
due to fortuitous event, but the Levis
international supported his claim on the
obligation of Gaysano based on the legal
subrogation aside from the Article 1302.
Article 1303
Subrogation transfers to the persons
subrogated the credit with all the rights thereto
appertaining, either against the debtor or
against third person, be they guarantors or
possessors of mortgages, subject to stipulation
in a conventional subrogation. (1212a)
Ang subrogation ang naglilipat sa mga taong
subrogated ang inutang kasama ang lahat ng
karapatan na ukol, alinman laban sa may utang
o ikatlong tao, sila man ay mga guarantor o
possessor ng sanla, batay sa sinasaad ng
kasunduan ng conventional subrogation.
(1212a)
Discussion:
The effect of legal sugbrogation is to transfer to Held: S cannot be preferred. As a matter of fact,
the new creditor the credit and all the rights it is X to whom the law grants preference
and actions that could have been exercised by because X is a creditor to whom only a partial
the former creditor either against the debtor or payment has been made.
against third persons, be they guarantors or
mortgagor. Simply stated, except only for the
change in the person of the creditor, the
obligation subsists in all respects as before the
novation.

If the credit transferred to the new creditor is

subject to a suspensive condition, the credit
cannot be collected until after the fulfillment of
the said condition.

Article 1304

A creditor, to whom partial payment has been

made, may exercise his right for the remainder,
and he shall be preferred to the person who has
been subrogated in his place in virtue of the
partial payment of the same credit.

Ang nagpautang, kung saan ang hindi pa na

buong kabayaran ay ginawa, maaaring
isakatuparan ang kanyang karapatan para sa
mga natira, at sya ay mas gusto para sa ibang
tao para sa kanyang lugar sa ngalan ng
kahalagan ng hindi buong bayad ng parehong
inutang.

Somes v. Molina

Facts: B bought property from X on the

installment plan (4 installments). S acted as
surety (a guarantor who bound himself
solidarily with B). When B failed to pay the first
installment, X sued B and S, and judgment was
entered against him. S, fearful for his rights,
then brought an action to have himself declared
subrogated in the rights of X. He did this
because he wanted to paid first, from the assets
of B. In other words, he wanted to be preferred
over X, the seller; he did not want X to be paid
first for the judgment.