business law:

obligations & contracts

(Arts 1278 - 1299)
 section 5:
compensation
 new civil code of the philippines

ARTICLE 1278. Compensation shall take

place when two persons, in their own right,
are creditors and debtors of each other.
give an example of
compensation.
 what is the rationale or
object of compensation?
compensation is also
called…
distinguish compensation
and confusion
 new civil code of the philippines
ARTICLE 1279. 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.
give an example where the two
debts are not “due and
demandable”
 new civil code of the philippines

ARTICLE 1281. Compensation may be

total or partial. When the two debts are
of the same amount, there is a total
compensation
distinguish partial from
total compensation
 new civil code of the philippines

ARTICLE 1282. The parties may agree

upon the compensation of debts which
are not yet due.
give an example of art. 182
 new civil code of the philippines

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.
art. 1286 applies to ____
compensation.
 give an example of
“debts may be payable in
different places”
 give an example of
“indemnity for expenses of
exchange or transportation
to place of payment”
 new civil code of the philippines

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.
 If a debtor has various debts
which are susceptible of
compensation, he must _____
the creditor which of them shall
be the object
 new civil code of the philippines

ARTICLE 1290. When all the requisites mentioned

in article 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.
 TRUE OR FALSE.

When compensation can take

place, the parties need to
consent for compensation to
take effect.
section 6:
novation
 new civil code of the philippines

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.
(1203)
define novation
what is the function/purpose
of novation?
give an example of novation
what is the function/purpose
of novation?
 new civil code of the philippines

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 terms, or that
the old and the new obligations be on every point
incompatible with each other. (1204)
what are the requisites or
elements of novation?
 Riri agreed to deliver 20 boxes of
Fenty to Travis. Later on, they
entered into another contract where
Riri agreed to deliver 10 boxes of
Fenty and 10 boxes of Maybelline for
the same amount. Is there novation?
what is the test for incompatibility
of provisions?
 Give an example of:
(1) An obligation where there is no
novation due to incompatibility
(2) An obligation where there is
novation due to incompatibility
what is the test for incompatibility
of provisions?
 new civil code of the philippines

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.
distinguish substitution from
subrogation
 what is an indispensable
requirement in substitution? why?
 Mickey and Minnie bought from
Donald a lot for a recording studio,
but did not fully pay. Later on, Mickey
split from Minnie but assigned to
Minnie all his rights to the lot. Is
Mickey’s obligation extinguished?
 new civil code of the philippines

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.
Alpha owes Beta Php1 million with an interest at 10%.
Alpha also owes Charlie Php100,000. Since they are
all friends, they agreed that Alpha would pay the
interest of Php100,000 to Charlie instead. Later on,
Alpha and Beta executed another contract where
Alpha agreed to deliver to Beta Fall Out Boy tickets
instead.

Does this mean that Alpha no longer has to pay

Charlie the Php100,000?
Why?
 new civil code of the philippines

ARTICLE 1297. If the new obligation is

void, the original one shall subsist, unless
the parties intended that the former
relation should be extinguished in any
event.
 This provision emphasizes
which essential element of
novation?
Alpha owes Beta Php1 million with an interest at
10%. Alpha also owes Charlie Php100,000. Since
they are all friends, they agreed that Alpha would
pay the interest of Php100,000 to Charlie
instead. Later on, Alpha and Beta executed
another contract where Alpha agreed to deliver
to Beta illegal drugs instead.

Is the entire obligation extinguished?

 new civil code of the philippines

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.
 Patrick agreed to lend Pete Php500,000 to
record bass for their new album, subject to the
condition that once the album is complete, Pete
will pay Patrick back.
They modified the agreement where Patrick will
give Pete a new bass guitar instead. The album
was completed but Pete argues he does not have
to return the bass guitar because it was not stated
in their new agreement. Is Pete correct?
subrogation