ANGELICA B.

GALICIA
Course Title : OBLICON Professor : ATTY. JOSE T. YAYEN
Sections : BA11

Chapter IV- EXGINGUISHMENT OF OBLIGATION

IV. 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.

(2) LEGAL COMPENSATION takes place by operation of the law without the knowledge of the two
parties and extinguishes reciprocally both of their debts with the amount of their sums.

(3) FACULTATIVE COMPENSATION is 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.

(4) NOVATION means the agreement of two parties to substitute a new obligation in place of the
existing one.

(5) EXPROMISION takes place when a third person initiatively takes place the obligation even
without the consent or against the will of the original debtor but with the consent of the creditor.

(6) DELEGACION is the substitution when the debtor offers and the creditor accept a third person to
take place for the satisfaction of the original debtors obligation.

B. Discussions:

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

ANSWER: All rights when there is a subrogation will be transferred to the new creditor
against debtors or third persons subject to stipulation in a conventional subrogation. It also
includes the right to employ all remedies to enforce payment.

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

ANSWER: There are four four essential requisites of novation:

1. A previous obligation
2. Capacity and intention of the parties to modify or extinguish the obligation
3. The modification or extinguishment of the obligation; and
4. The creation of a new valid obligation
 (3) May there be compensation although the things due are not consumable? Explain.

ANSWER: Article 1279 states that in order that a compensation may be proper, it is necessary
that both debts consist in a sum of money, or if the things due are consumable. Thus, there is no
compensation when things due are not consumable.

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)

ANSWER: Yes, the bank has the right to set-off D’s savings deposit with his character loan that is already
due and demandable. General law states that a bank has the right to set aside deposits for payment by a
depositors loans and similarly depositor has also the right to set off his bank money deposit against the
loans that he had received from that bank. In this case, it has been applied correctly.

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)

ANSWER: There is no effect to D as the two debts should not be compensated against each other. The
obligation of C is already annulled because even from the beginning, C’s obligation is voidable.
Annulment of an obligation has the effect of retroactivity which means that as stated in Art. 1284, D is
still liable and must pay C the amount due plus damages if applicable.

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)

ANSWER: Yes, D is released from his obligations through expromision . However, it is not explicit whether
the debtor is knowledgeable to the act of T with respect to his voluntary payment of the debtor’s debt,
but T is entitled to recover what has been beneficial to D.

V. 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?

ANSWER: No, the bank is not correct with respect to the amount in application of compensation. It is
true that the bank may apply Art. 1278 in setting-off their clients deposit in savings in payment of their
loans but it should be to the only ones that are due and demandable. The amount deductible must only
be P300,000 covering the third, fourth and fifth installments due while the remaining balance
amounting to P1M which is not yet due must not be deducted to Sarah’s deposit account.

(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)

ANSWER: (a) C's share in the joint obligation is extinguished by confusion but the indebtness of A and B
in the amount of P5, 000 each remains because as to them- payment by confusion will not apply since
the nature of the obligation is joint. A and B would also be liable to C now instead of D for P 5000 each.
(b) If it is a solidary obligation, since there is only one obligation for all, the assignment will extinguish
the obligation of all through confusion. C may claim reimbursement from his co-debtors for the shares,
which correspond to them.

(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)

ANSWER: There is no extinguishment by confusion in this problem. Mr. B is a creditor and Mr. C is a mere
guarantor of Mr. A and not an obligor. Under Article 1275, in order that confusion may take place
resulting in an extinguishment of an obligation- both the creditor and debtor must be the same person
which in this case is not met. Thus, the obligation of B is not yet extinguished.