SECTION 3 CONDONATION OR REMISSION OF
Compensation shall take place
THE DEBT
CONDONATION OR REMISSION
- It is the gratuitous abandonment by the
creditor of his right against the debtor.
- A form of donation
Requisites of Condonation or Remission
1. It must be gratuitous;
2. It must be accepted by the obligor/debtor;
3. The obligation must be demandable;
4. The parties must have capacity;
5. The condonation must not be inofficious; and
6. The condonation must comply with the forms of
donations, if it is an express condonation.
KINDS OF REMISSION OR CONDONATION
1. As to its form
a. Express
 Made in accordance with the formalities
prescribed by law for donations.
 Made either verbally or writing.
b. Implied
 When it can be deduced from the acts of
the oblige or creditor.
 Only be inferred from conduct.
2. As to extent
a. Complete
 When the entire obligation is extinguished.
b. Partial
 When it refers only to the principal or to the
accessory obligation or to an aspect thereof
which affects the debtor, as for instance
solidarity.
3. As to condition
a. Inter Vivos
 Constituted by agreement of the obligee
and the obligor.
 Takes effect during the lifetime of the
donor.
b. Mortis Causa
 Constituted by last will and testament.
 Become effective upon the death of the
donor.
 Must comply with the formalities of a will.
SECTION 4 CONFUSION OR MERGER OF
RIGHTS
CONFUSION OR MERGER
- Meeting in the same person of the qualities
of creditor and debtor with respect to one
and the same obligation.
- If the debtor is his own creditor, enforcement
of the obligation becomes absurd, since one
cannot claim against himself.
Requisites of confusion or merger
1. The merger of the characters of the creditor
and debtor must be in the same person;
2. The merger must take place in the person of
either the principal creditor or the principsl
debtor; and
3. The merger must be complete and definite.
SECTION 5 COMPENSATION
COMPENSATION
- Article 1278.
when two persons, in their own right, are
creditors and debtors of each other. (1195)
- Reciprocal extinction of claims between
mutual debtors (Roman Law)
- There must be at least two obligations
KINDS OF COMPENSATION
1. As to cause
a. Legal
 takes effect by operation of law.
 takes place when all the requisites of law
are present.
b. Voluntary or Conventional
 Takes place by agreement of the parties
 Occurs when the parties agree to the
mutual extinguishment of their credits or
to compensate their mutual obligations
even in the absence of some of the legal
requisites.
Requisites of Conventional Compensation
1. That each of the parties can dispose of the
credit he seeks to compensate.
2. That they agree to the mutual
extinguishment of their credits.
c. Judicial
 Takes effect by judicial decree
d. Facultative
 Compensation can be set up by one of
the parties.
2. As to effect
a. Total
 Two debts are of the same amount.
b. Partial
 Two debts are not of the same amount.
ASSIGNMENT OF RIGHTS
- The transfer of rights, especially contractual
rights, from one party to another.
Effects of Assignment of Rights
1. If the debtor consented to the assignment of
rights made by the creditor in favor of the
third person, he cannot set up against the
assignee the compensation which pertains
to him against the assignor.
2. If the debtor consented to the assignment of
rights made by a creditor is favor to a third
person and he reserved his right to the
compensation, then he can set up against
the assignee the compensation which
pertains to him against the assignor.
3. If the assignment is made without
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.
DEBTS WHICH CANNOT BE COMPENSATED
1. Debts arising from contract of depositum.
 Compensation shall not be propped when
one of the debts arises from a depositum
or from the obligation of a depository.
CONTRACT OF DEPOSIT
- A deposit is constituted from the moment a
person receives a thing belonging to
 another, with the obligation of safely
keeping it and of returning the same.
- Article 1962, NCC. If the safekeeping of the
thing delivered is not the principal purpose
of the contract, there is no deposit but
some other contract.
2. Debts arising from a contract of
commodatum.
 Compensation shall not be proper when
one of the depbt arises from
commodatum or of a bailee in
commodatum.
CONTRACT OF COMMODATUM
- Commodatum is by the contract of loan,
one of the parties delivers to another, either
by something not consumable so that the
latter may use the same for a certain time
and return it.
- It is also a money or other consumable
thing, upon the condition that the same
amount of the same kind and quality shall
be paid in which case the contract is simply
called a loan or a mutuum.
3. Claims for support due by gratuitous title.
 Compensation cannot be set up against a
creditor who has a claim for support due
by gratuitous attitude.
SUPPORT DEFINED AS:
- Everything that is indispensable for
sustenance.
THE RIGHT TO SUPPORT CANNOT BE:
a. Renounced;
b. Transmitted to the third persons; nor
c. Compensated with what the recipient owes
the obligor.

4. One of the debts consists in civil liability

arising from a penal offense.
 Debts cannot be compensated if one of
the debts consists in civil liability arising
from a penal offense.
RATIONALE:
“If one of the debts consists in civil liability arising
from a penal offense, compensation would be
improper and inadvisable because the satisfaction
of such obligation is imperative.”