Art.

1284 When one or both debts are rescissible or voidable, they may be compensated against each
other before they are judicially rescinded or avoided. (n)

Rescissible and voidable obligations are valid until they have been judicially rescinded or
avoided. Before they are rescinded or annulled, the debts may be compensated against each other.

Art. 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)

 Compensation before assignment

When compensation has already taken place before the assignment, automatically or by
operation of law, the debts are extinguished to the concurrent amount. A subsequent
assignment of an extinguished obligation cannot produce any effect against the debtor. The
only exception to this rule is when the debtor consents to the assignment of the credit; his
consent constitutes a waiver of the compensation, unless at the time he gives consent, he
informs the assignor that he reserved his right to the compensation.

 Compensation after assignment

 Assignment with the consent of debtor

As far as the debtor is concerned, the assignment does not take effect except
from the time he is notified thereof. If the notice of assignment is simultaneous to the
transfer, he can set up compensation of debts prior to the assignment. If notice was
given to him before the assignment, this takes effect at the time of the assignment;
therefore the same rule applies. If he consents to the assignment, he waives
compensation even of debts already due, unless he makes a reservation.

 Assignment with the knowledge but without the consent of debtor

If the debtor was notified of the assignment, but he did not consent, and the
credit assigned to a third person matures after that which pertains to the debtor, the
latter may set up compensation when the assignee attempts to enforce the assigned
credit, provided that the credit of the debtor became due before the assignment. But if
the assigned credit matures earlier than that of the debtor, the assignee may
immediately enforce it, and the debtor cannot set up compensation, because the credit
is not yet due.
  Assignment without the knowledge of the debtor
If the debtor did not have knowledge of the assignment, he may set up by way
of compensation all credits maturing before he is notified thereof. Hence, if the
assignment is concealed, and the assignor still contracts new obligation in favor of the
debtor, such obligation maturing before the latter learns of the assignment will still be
allowable by way of compensation. The assignee in such case would have a personal
action against the assignor.

Art. 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)

 Substitution – when the person of the debtor is substituted

 2 forms of novation by substitution of debtor:

1. Expromision – with consent of creditor, no consent of old debtor

 Requisites:
a. Initiative of third person
b. Consent of creditor
c. Without the knowledge or against the will of the original debtor
d. Old debtor is released from his obligation
 Payment by the new debtor gives him the right to beneficial reimbursement under
the second paragraph of article 1236.

2. Delegacion – all must agree (creditor, old debtor, new debtor)

 Requisites:
a. Initiative from old debtor
b. Consent of debtor
c. Acceptance by creditor
 Payment by the new debtor entitles him to reimbursement and subrogation under
article 1237.

Art. 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. (1213)

The creditor to whom partial payment has been made by the new creditor remains a creditor to
the extent of the balance of the debt.

In case of the debtor’s insolvency, he is given a preferential right to recover the remainder as
against the new creditor.
Art. 1305 A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. (1254a)

 Contracts are binding agreements enforceable through legal proceedings in case the
other party does not comply with his obligation under the agreement.
 Contracts lay emphasis on the meeting of minds between two contracting parties which
takes place when an offer by one party is accepted by the other.
 In contracts, one or more persons bind himself or themselves with respect to another or
others, or reciprocally, to the fulfillment to give, to do, or render service or refrain from
doing some particular thing.
 Agreements which cannot be enforced by action in the courts of justice are not
contracts but merely moral or social agreements. So, all contracts are agreements but
not all agreements are contracts.
 To be valid and enforceable, a contract must be lawful and all the requisites for its
validity must be present.
 3 elements:
1. Essential elements – without which there is no contract; they are:
a) consent
b) subject matter; and
c) cause
2. Natural elements – exist as part of the contract even if the parties do not provide for
them, because the law, as suppletory to the contract, creates them
3. Accidental elements – those which are agreed by the parties and which cannot exist
without stipulated