Art 1268

3rd party claim

Ex:

X hit Y; Y claim damages for X and X run after the insurance. The insurance is
not the 3rd party

Art 1270 - Condonation and Remission of debt

Remission/ Condonation- gratuitous abandonment by the creditor of his right. It

does not apply in inefficous donation,

Remission is equivalent to donation. Rules on donation shall apply.

Kinds of remission

-93 express or implied

-94 full or partial

Valid

-95 debt must be existing

-96 renunciation of debt must be gratuitous

Art 1271

Implied renunciation of action (it must be voluntary), it speaks of private

document (not notarized).

Art 1272
 When the private document of the debt is in the debtor, it is presumed the creditor
had voluntary delivered the same thing.

Art 1273

Renunciation of principal extinguish accessory, but the waiver of the accessory

shall leave the principal in force

Art 1274

It is presumed that the accessory obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or
of a third person who owns the thing.

Art 1275 Confusion or a merger of rights

there no confusion or merger of rights• or merger if he is just an agent. there

must be debtor and creditor.

The same obligation involve•

Clear and definite•

Ex

A pay his debt to B (payment was check) then later hand it to C then pay it to A;
that is what we called confusion or merger.

Usufractuary is not covered by 1275

Art 1276

There is no merger in accessory (such as mortgage (security))

Art 1277

Exception

If A and B jointly liable to C; C now assign his rights to A; A's obligation is

extinguish but B is still owes a share of his debts to A

Art 1278 Compensation

Sort of balancing between 2 obligation

Kinds of compensation

Legal - by operation of the law

Conventional or voluntary - agreement to the parties

Judicial - it can be effective if there is order of the court

Facultative - one parties has the choice of claiming the compensation or opposing
it

Art 1279 Legal compensation ( to have compensation)

both bound principally•

the must consist a sum of money, things• are fungible, they are the same
kind and also the same quality if it has been stated

2 debts are due•

liquidated and demandable.it must be• court demandable. Not included

natural obligations

commenced by 3•rd person

Guarantor may invoke compensation because he may be release from debts.

Art 1281

Compensation may be total or partial. When the two debts are of the same
amount, there is a total compensation

Art. 1282. The parties may agree upon the compensation of debts which are not yet due.

Art. 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.

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

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.
Effects of Assignment

the assignment may be made with the• consent of the debtor

assignment may be made with the• knowledge but with out the consent of
the debtor

the assignment may be made without the• knowledge of the debtor

Ex:

A borrowed from B the following:

1. A fujistsu laptop valued at P199,000.00 due on August 20, 2004

2. P500,000.00 due on December 31, 2004

3. P50,000.00 due on January 30, 2005

4. P20,000.00 due on October 15, 2003

B borrowed from A the following:

1. P50,000.00 due on December 15, 2003

2. P100,000.00 due on October 1, 2003

3. A nokia communicator due on Aug 15, 2004

4. P25,000.00 due on Feb 2005

A now assigned his credit to C. If the assignment was made on January 2005, can
there be compensation?

Ans:
 No, not all. A1 (laptop) and B3 (nokia communicator) are not subject to
compensation because compensation must be of the same kind.

Knowledge is important because when it due or upon knowledge, the obligation is

due.

For ex: Feb 14, 2005, the knowledge of the debtor took place, but during or early
as November 2004, there was assignment by the creditor. It is subject for compensation
because at the time of the knowledge it is due and demandable.

Art 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 1287

Compensation shall not take place in depositum or bailee in commodatum.

Neither support cannot be subject for compensation.

The law provides that support is not subject for forced sale, attachment, etc…

In criminal offense, there can be no compensation on the accused, only the

aggrieve party.

Also tax is not subject for compensation as provided by law.

Cases Compensation:
BPI vs CA March 29, 1986

The time was issuance of the check, Fernandez was already dead. BPI was
verbally ordered by Dr. Reyes. Reyes allowed to withdraw, the question is the verbal
authorization. Was the compensation valid?

Even without the consent. There was bad faith depositing the check knowing that
her mother is already dead.

PNB Macedor vs Uy Aug 15, 2001

Both debts are not demandable so the compensation are not valid

PNB vs CA July 28, 1998

Double entered the amount by the bank and requested Mr. Lape to return and Mr.
Lape did not return, so the bank compensated in which the bank deducted the amount on
Mr. Lape's account. Was the compensation valid?

No, the compensation was not valid because they are not obliged with each other.

(tax) Francia vs IAC June 28, 1998

it all about taxes; they are not subject to compensation

EGV Realty vs CA July 20, 1999

Compensation is not valid because it is only a claim and not a debt. Inorder to
have compensation, both parties must have debts to each other.

Novation
Art 1291

Novation is substitution or change of an obligation.

Changing their object or principal• conditions

Substituting the person of the debtor•

Subrogating a third person in the• creditor

Valid Novation

there must be a valid previous• condition

extinguishment of the old obligation• (the capacity or consent of all parties)

validly of new obligation•

No novation in:

no novation in accessory•

terms of payment was changed was not a• novation

changing the amount due was no novation•

substitution of title in credit was no• novation

the return of title; if private there• was no novation except in public then
there will be novation

there was no novation if the terms of payment was changed

Art 1292

Novation Arises if there was incompatibility. Novation is never presumed, that

there was complete incompatibility.
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

Ex promision

Novation must have consent•

With the knowledge of the debtor is• allowed

Art 1294

If the new debtor without the consent with the old debtor, if the new one was
insolvent, the old debtor have no liability.

Art 1295

If with consent, if the new debtor is insolvent it shall not give rise to the old
debtor except if the old debtor knew that the new debtor was insolvent.

Art 1296 Effect of accessory in novation

It shall not be carry except if it affect 3rd person (in which did not give consent)

Cases on Novation
California Bus Line inc vs State investment house inc.

418 S 297

CBLI was not able to paid SIHI and later change the date of the payment. Delta
has debt to SIHI.

CBLI has debt for 35 units of bus and secured by 16 Promissory note with interest
of 14% per anum.

CBLE was not able to pay Delta. Delta also a problem in paying SIHI. Delta
offered SIHI the promissory note by CBLI.

SIHI now ask the payment by promissory note of CBLI. CBLI refused to pay
because there is novation.

Was there a novation?

No novation, the restructuring of the agreement does not constitutes novation.

Novation must be expressly stipulated, implied novation that there must be inconsistency
of the agreement.

Garcia vs Llamas

417 S 292

Delivery of a check is considered paid until it is encashed. Both parties did not
declare that there is novation, also there is no incompatibility between Notes payable and
check.

Molino vs Security Diner

 The upgrading of credit card constitutes novation because there is a complete
change of credit card but the novation did not release from the obligation. There was
express waiver from the debtor.

Idolor vs CA

351 S 329

No novation, novation can never be pressumed. That there was no express Stipulation
unlike in bantista case

Bautista vs Pilar dev corporation

312 S 611

There was a novation because there was a word cancelled or cancelling the old
obligation. There was a complete incompatibility

Subrogation

Licaros vs Gatmaitan

Art 1298 void original obligation means void novation

Art 1299 effect of original obligation was conditional, it shall carry way its accessories

Art 1300 Subrogation, transfer all the rights of his to a 3rd person.

Art 1301 it will require the consent of all parties

Art 1302 Legal subrogation

1. When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;

Ex: A paid the debts of B to D (creditor) with mortgage even without the
knowledge of B (the debtor). A is entitled to subrogation

2. When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;

3. When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as
to the latter's share.

Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights
thereto appertaining, either against the debtor or against third person, be they guarantors
or possessors of mortgages, subject to stipulation in a conventional subrogation.

Ex:

D owes C P100,000.00. G is the guarantor. A who is stranger paid C the amount

of P1,000,000.00 with the consent of D and C. S now subrogated in the place of C.

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.

(Partial Subrogation)
Sygovia vs Dumaton

Dumaton has a debt to Sygovia for the purchase of the condo unit, upon demand
(they don't have understanding) Dumaton paid P1.9M consigned with the realty of CA.
Was there a valid consignation?

The consignment was made to forestall the recession but there is no legal tender
and therefore consignation is invalid.

Pagubain Case:

a check is not legal tender•

a check was consigned in the court•

was there a valid consignation?

Yes there is a valid consignation