ARTICLE 1278

Angelyn Antipas
Scenario 2: Alex was injured in a car accident, and the driver
who caused the accident promised to settle his medical bills.
However, the driver never followed through with the promise.
COMPENSATION VS PAYMENT

A. While payment must be complete and indivisible as a rule, in Compensation,

partial extinguishment is always permitted.
B. While payment involves action or delivery, true/legal Compensation takes place
by operation of law.

COMPENSATION VS MERGER/CONFUSION

A. As to the number of persons

Confusion – There is only 1 person in whom is merged the qualities of creditor and
debtor.
Compensation – There must be 2 persons who are mutually creditor and debtor of
each other.

B.As to the number of obligations:

Confusion – There can only be one
CLASSES OF COMPENSATION
A.According to it’s effect or extent
• Total – both obligations are completely
extinguished because they are of the same
amount.
• Partial – When a balance remains.

B. According to it’s origin or cause.

• Legal – takes place by operation of law.
• Voluntary or Conventional – Due to the
agreement of both parties.
• Judicial – also called set off
• Facultative – one of the parties has the choice of
claiming the compensation or of opposing it.
ARTICLE 1279 &
1280
Rosemarie Anne Asistio
 Article 1279 – The requisites enumerated
under Articles 1279 are those for legal
Compensation. VOLUNTARY compensation
in general requires no requisites except that
the agreement be voluntarily and validly
entered into.
In order that compensation may be
proper, it is necessary
That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
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;
That the two debts be due;
1. That they be liquidated and demandable;
Negative requisites for Legal
Compensation

That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to
the debtor.”
1. There must have been no waiver of the compensation.
2. The compensation of the debts must have been prohibited by
law.
 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
ARTICLE 1281 &
1282
Diana Jhane Dumawal
Article 1281 – Compensation may be total
or partial. When the two debts are of the
same amount, there is total compensation.
Article 1282 – The parties may agree upon
the compensation of debts which are not yet
due.
■ This applies to Conventional or voluntary
compensation
■ Requisites in Article 1279 do not apply.
ARTICLE 1283 &
1284
Resty Gaitero
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.
■ All the requisites mentioned in Article 1279
must be present, except at the time of the
pleading, the claim need not yet be
liquidated.
 Article 1284 – When one or both debts
are resistible or Voidable, they may be
compensated against each other before
they are judicially rescinded or avoided
■ Rescissible or Voidable debts are valid until
rescinded or voided, hence, compensation is
allowed.
ARTICLE 1285 &
1286
Article 1285
The 3 Cases covered by article 1285
A. The assignment may be made with the consent of the debtor.
EFFECT: Compensation cannot be set up- because there has been consent and therefore
a waiver.
EXCEPTION: If the right to the compensation (that has already taken place) is
reserved.
B. The assignment may be made with the knowledge but without the consent (or against
the will) of the debtor.
EFFECT: Compensation can be set up regarding debts previous to the cession or
assignment. This refers to the debts maturing before the assignment (that is, before the
notice) hence here, legal Compensation has already taken place.
C. The assignment may be made without the knowledge of the debtor.
EFFECT: Debtor can set up compensation as a defense for all debts maturing Prior to
his knowledge of the assignment (whether the debts matured before or after the
assignment)
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.
ARTICLE 1288
Estephanie Perez
 Article 1287 – Compensation shall not
be proper when one of the debts arises
from a depositum or from the obligation
of a depository or of a bailee in
commodatum.
■ This article speaks of instances when legal Compensation cannot take
place, such as:
A. When one debt arises from a depositum (not bank deposit for this is
really a loan) – It is the depository who cannot claim compensation.
The depository is allowed to so claim.
B. When one debts arises from the obligations of a depository.
C. When one debt arises from the obligations of a bailee in commodatum
(the borrower of property who pays nothing for the loan) – the lender
may claim compensation, the borrower is not allowed to do so.
Obligations of the Depository
A. He is obliged to keep the thing safely and to return it when required, to the
Depository, or to his heirs and successors, or to the person who may have
been designated in the contract.
B. Unless there is a stipulation to the contrary, the depository cannot deposit
the thing to a third person.
C. If a deposit with a third person is allowed, the depository is liable for the
loss of the deposited the thing with a person who is manifestly careless or
unit.
D. The depository is responsible for the negligence of his employees.
E. The depository cannot make use of the thing deposited without the express
permission of the depositor. Otherwise, he shall be liable for damages.
However, when the preservation of the thing requires it’s use, it must be
used only for that purpose
Article 1288 – Neither shall there be
compensation if one of the debts
consists of civil liability arising from
a penal offense.
ARTICLE 1289 &
1290
Lhizel Rodelas
 Article 1289 – If the person shall have
against him, several debts which are
susceptible of compensation, the rules on
the application of payment shall apply to
the order of the compensation.
 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.
ARTICLE 1291
Marianne Saura
Article 1291

Novation – The substitution or change of an

obligation by another, which extinguishes or
modifies the first, either changing its object or
principal condition, or substituting another in
place of the debtor, or subrogating third person in
the right of the creditor.
Kinds of Novation

A. According to it’s Object or Purpose:

1. Real or Objective – changing the object or principal conditions of the obligation.
2. Personal or Subjective – change of persons.
a. Expromission or Delegacion – substituting the person of the debtor.
b. Subrogating a third person in the rights of the creditor – may be:
B1. Conventional Subrogation – by agreement.
B2. Legal Subrogation – by operation of law.
B3. Mixed – change of object or parties.
B. According to the form of the constitution
1. Express – it is declared in unequivocal terms.
2. Implied – when the two obligations are essentially incompatible with each other.
C. According to it’s extent of effect
3. Total or Extensive Novation – when the old obligation is completely extinguished.
4. Partial or Modificatory – also called imperfect or improper – the old obligation is merely modified,
thus, it still remains in force insofar as it has been modified.
REQUISITES FOR NOVATION
a. The existence of a valid OLD obligation.
b. The intent to extinguish or modify the old obligation by a substantial difference ( the
extinguishment/modification itself is a result of novation)
c. The capacity and consent of all the parties (except in the case of Expromission, where the old debtor
does not participate)
d. The validity of the new obligation.
ARTICLE 1292
Joan Elen Segayo
Article 1292 – In order that an obligation may
be extinguished by another which substitute the
same, it is imperative that if be so declared in
unequivocal terms, or that the old and new
obligation be on every point incompatible with
each other.
How implied Novation may be made – it is done
by making Substantial Changes in
A.The object or subject matter of the contract (e.g.
delivery of a car instead of a diamond ring)
B.The cause or consideration of the contract (e.g.
upward changes in price)
The principal terms of the contract (e.g. reduction of the
term or period originally stipulated)
Kinds of Personal or Subjective Novation:
a. Passive – change in the debtor
b. Active – change in the creditor
ARTICLE 1293
Article 1293

Speaks of Passive Subjective Novation – which may be in the form of:

A. Expromission – Initiative comes from a third person.
B. Delagacion – Initiative comes from the Debtor, for it is he who delegates another to
pay debt, and thus he excuses himself. The third parties, the old debtor, the new debtor
and the creditor, must agree.
ARTICLE 1294
Edilyn May Tiu
Article 1294

If the
If the substitution
substitution is knowledge
is without the withoutorthe knowledge
against or the new
the will of the debtor,
against the will of the debtor, the new debtor’s
debtor’s insolvency or non-fulfillment of the obligations shall not give rise to any
liability on the part of the original debtor. (n)
insolvency or non-fulfillment of the obligations
shall not give rise to any liability on the part of
the original debtor