ART.1255 .

The debtor may cede or

assign his property to his creditors in
payment of his debts. This cession ,
unless there is stipulation to the
contrary, shall only release the debtor
from responsibility for the net proceeds
of the thing assigned. The agreements
which , on the effects of the cession,
are made between the debtor and his
creditors shall be governed by special
laws. (1175a)

REQUISITES OF PAYMENT BY
CESSION

They are :
1. there must be two or more creditors
2. the debtor must be (partially) insolvent
3. the assignment must be involve all the
properties of the debtor ; and
4. the cession must be accepted by the creditors

Example:
D is indebted to several creditors in the total
amount of P2 million . His asset are not
sufficient to pay all his debts.
With the consent of creditors , D may assign his
property to them to be sold, to satisfy their
credits. If the net proceeds of the sale amount
only to P1.5 million, D is still liable for the
balance of P 500,000 unless there is stipulation
that the assignment shall be in full satisfaction
of all his debts.

In dation(see art. 1245.) ,

there is ussually only one
creditor
Dation does not presuppose
the insolvency of the debtor
Dation does not involve all
the property of the debtor,
In dation, the creditor
becomes the owner of the
thing given by the debtor
Dation is really an act of
novation (art 1291)

while in cession, there are

several creditors
while in cession , the debtor is
insolvent at the time of
assignment
while cession extend to all the
property of the debtor subject
to execution
while in cession , the
creditors only acquire the right
to sell the thing and apply the
proceeds to their credit s
proportionately; and
while cession is not an act of
novation.

ART. 1256 . if the creditor to whom tender

of payment , has been refused without just
cause to accept it, the debtor shall be
released from responsibility by the
consignation of the thing or sum due.

When the creditor is absent or unknown , or does

not appear at the place of payment;
When he is incapacitated to receive the payment
at the time it is due.
When, without just cause, he refuses to give a
receipt;
When two or more person claim the same right to
collect:
When the title of the obligation has been lost.

Tender of payment is the act, on the part of the

debtor, of offering to the creditor the thing or

amount due. The debtor must show that he has
in his possession the thing or money to be
delivered at the time of the offer.
Consignation is the act of depositing the thing or
amount due with the proper court when the
creditor does not desire or cannot receive it, after
complying with the formalities required by law.
Consignation is applicable when there is debtor
an obligation to pay. It is always judical to pay
and it generally requires a prior tender of
payment which is, by its very nature ,
extrajudical.

Existence of a valid debt which is due

Tender of payment by the debtor and refusal
without justifiable reason by the creditor to
accept it.
Previous notice of consignation to persons
interested in the fulfillment of the obligation
Consignation of the thing or sum due; and
Subsequent notice of consignation made to
the interested parties.

Example:
D owes C a sum of money. On the due date of the obligation , D offers to
pay the obligation but C refuses to accept the payment without any
justifiable reason .
In this case, Ds obligation will not be distinguished until he has made a
valid consignation. The refusal by C to accept without just cause will not
have the effect of payment.
D entered into contract with C. D is given the right to cancel the contract
upon the payment of P1,000.00 to C.
In this case , D has no existing debt to C. the amount of P1,000.00 is not
owed by D, being merely the consideration for the exercise of his right
to cancel the contract . Hence, consignation of the P1,000.00 is not
necessary. Tender of payment is good faith is sufficient to entitle D to
cancellation .

Tender of payment is not necessary before the

debtor can consign the thing due with the court.
It has been held that a creditor who, without legal
justification informs his debtors that payment of a
debt will not be accepted thereby waives payment
on the date when the payment will be due ; and as
a consequence the debtor is, in such case ,
excused from making a formal tender of the
money on such date. A debtor does not incur
default by failing to make a fruitless tender after
notification from the creditor that the money will
not be received.

Tender of payment must comply with the rules

on payment. The tender ,even if valid does not
by itself produce legal payment , unless it
completed by consignation.
It must be unconditional and for the whole
amount.
It must be actually made. The manifestation of a
desire or intention to pay is enough.

ART.1257, an order that the

consignation of the thing due may
release the obligor, it must first be
announced to the persons interested
in the fulfillment of the obligation.
The consignation shall be ineffectual if
is not made strictly in consonance
with the provision which regulate
payment.

In the absence of prior notice to the person

interested in the fulfillment of the obligation
(such as guarantors, mortgages, solidary
debtors, solidary creditors) the consignation,
as payment shall be void.
The purpose of the notice is to give the
creditor a chance to reflect on his previous
refusal to accept payment considering that
the expenses of consignation shall be
charged against him and that in case of loss
of the thing consigned, he shall bear the risk
thereof.

Consignation, to amount to a valid payment,

must also comply with the provisions which
regulate payment,
One of these rules is that payment should be
made in legal tender . The general rule is that
an offer of a bank check for the amount due
is not a good tender and this is true even
though the check is certified or is a
manangers check, except where no objection
is made on that ground.

ART.1258 consignation shall be made

by depositing the things due at the
disposal of judicial authority, before
whom the tender of payment shall
be proved, in a proper case, and the
announcement of the consignation in
other case.
The consignation having been made ,
the interested parties shall also be
notified thereof.

Consignation, by depositing the thing or sum

due with the proper judicial authority, is
necessary to effect payment.
As tender of payment must precede
consignation, the tender must be proved by
the debtor in proper case.
In other cases when tender is not required only
prior notice to interested person of the
consignation needs to be proved.

After the consignation has been made , the

interested parties must also be notified
thereof. In a case this requirement was held
fulfilled by the service of summons upon the
defendants together with a copy of the
complaint .
The purpose of the second notice is to enable
the creditor to withdraw the thing or sum
deposited in case he accepts the consignation
.

Art .1259 the expenses of consignation ,

when properly made, shall be charged
against the creditor.
Creditor bears expenses of consignation
the consignation is made necessary because of the
fault or unjust refusal of the creditor to accept the
payment. That being the case, it is but just that the
expenses should be charged against him.
of course, the expenses are chargeable to the
debtor if the consignation is not properly made.

When the creditor accepts the thing or sum

deposited, without objection, as payment of the
obligation.
When the creditor question the validity of the
consignation, and the court after hearing, declares
that if has been properly made.

Art .1260 once the consignation has been

duly made , the debtor may ask the judge
to order the cancellation of the obligation .
Before the creditor has accepted the
consignation , or before a judicial
declaration that the consignation has been
properly made , the debtor may withdraw
the thing or the sum deposited , allowing
the obligation to remain in force.

The observance of all the requisites of

consignation operates as a valid payment; hence,
the debtor can move for he cancellation of the
obligation by the court. The debtor, however,
may withdraw as a matter of right the thin or
sum (1)before the creditor has accepted the
consignation or (2)before a judicial declaration
that the consignation has been properly made, as
he is still the owner of the same. In such a case,
the obligation shall continue to remain in force .
All expenses are paid by the creditor.

Art. 1261 if, the consignation having

been made, the creditor should
authorize the debtor to withdraw the
same , he shall loss every preference
which he may have over the thing .
The co-debtors, guarantors and
sureties shall be released.

Since consignation is for the benefit of the creditor, he may

authorize the debtor to withdraw the deposit after he
has accepted the same or after a court has issued an
order cancelling the obligation . As far as the debtor and
the creditor are concerned, their relations will remain as
they were before acceptance or cancellation. However ,
the creditor shall lose every preference which he may
have over the thing , and the co debtors(reffering to
solidary debtors) , guarantors, and sureties shall be
released.
The solidary debtors are released only from their
solidary liability, but not from their shares of the
obligation , since unlike gaurantors and sureties,
they are also principal debtors.

Examples :
1.D is indebted to C in the sum of P50,000.00
with G as guarantor. On the due date of the
obligation, D offered payment but C refused
to accept the same. So , D made a
consignation. Subsequently, D withdrew the
deposit after securing the consent of C.
Under article 1261, C shall lose whatever
preference he may over the amount and G,
the guarantor , shall be released.
2. If, in the example given , D and G are
solidarily liable to C, G is released only from
his solidary liability but he is still liable to C
for P25,000.00, , his share in the obligation.

ART.1262 An obligation which consists in the

delivery of a determinate thing shall be
extinguished if it should be lost or destroyed
without the fault of the debtor , and before
he has incurred in delay.
When by law or stipulation , the obligor is
liable even for fortuitous events, the loss of
the thing does not extinguish the obligation ,
and he shall be responsible for damages. The
same rule applies when the nature of
obligation requires the assumption of risk.

It is understood that a thing is lost when it

perishes , or goes out of commerce or
disappear in such a way that its existence is
unknown or it cannot be recovered.
Loss of the determinate thing under article
1262 is the equivalent of impossibility of
performance in obligations to do referred to
in article 1266. But loss of the thing due as
used in article 1231 and the above section
subtitle, extends to both obligations to give
and obligations to do.

In order that an obligation may be

extinguished by the loss of the thing, the
following requisites must be present:

The obligaton is to deliver a specific or

determinate thing:
The loss of the thing occurs without the fault
of the debtor; and
The debtor is not guilty to delay.

There are cases, however , when the loss of the

specific thing even in the absence of fault and
delay will not exempt the debtor from
liability. They are:

When the law so provides (Arts.1170,1165)

When the stipulation so provides;
When the nature of the obligation requires
the assumption of risk
When the obligation to deliver a specific thing
arises from a crime.

ART.1263 in an obligation to
deliver a generic thing, the loss or
destruction of anything of the
same kind does not extinguish
the obligation.

The above article is an example of a case

where the debtor is liable even for a
fortuitous event because the law says so.
It is based on the principle that a generic thing
never perishes . The debtor can still be
compelled to deliver a thing of the same kind.
The creditor , however, cannot demand a
thing of superior quality and neither can the
debtor deliver a thing inferior quality.

Examples:

S promised to deliver 100 cavans of rice to B.

the 100 cavans of rice which S intended to
deliver were lost on a flood.
S is liable to B because his obligation is to
deliver a generic thing , and it can still be
paid from other sources.
Supposed the obligation of S is to deliver 100
cavans of rice from the harvest made by him
and such harvest is completely lost or
destroyed, is the obligation extinguished?
Yes, because the rice stipulated to be delivered
is confined to a particular class and may thus
be considered a determinate thing.

ART. 1264. The courts shall determine

whether, under the circumstances ,

the partial loss of the object of the
obligation is so important as to
extinguish the obligation.

Effect of partial loss of a specific

thing

There is a partial loss when only a portion of the

thing is lost or destroyed or when it suffers
depreciation or deterioration . Partial loss is the
equivalent of difficulty of performance in
obligations to do.(Art.1267)
In case of partial loss , the court is given the
discretion in case of disagreement between the
parties, to determine whether under the
circumstances it is so important in relation to
the whole as to extinguish the obligation. In
other words , the court will decide whether the
partial loss is such as to be equivalent to a
complete or total loss.

Example :
S obliged himself to deliver to B a specific race
horse. The horse met an accident as a result of
which it suffered a broken leg. The injury is
permanent . Here , the partial loss is is so
important as to extinguish the obligation.
If the loss is due to the fault of S, he shall be
obliged to pay the value of the horse with
indemnity for damages.
If the horse to be delivered is to be slaughtered by
B, the injury is clearly not important. Even if there
was fault on the part of S , he can still deliver the
horse with the liability for damages , if any,
suffered by B.

ART. 1265 whenever the thing is lost in

the possession of the debtor , it shall be
presumed that the loss was due to his
fault, unless there is proof to the contrary,
and without prejudice to the provision of
article1165. this presumption does not
apply in case of earthquake, flood storm or
other natural calamity.

Presumption of fault in case of loss of

the thing in possession of debtor
The article establishes a disputable
presumption of fault whenever the thing to
be delivered is lost in the possession of the
debtor. The presumption is reasonable
because the debtor who has the custody and
care of the thing can easily explain the
circumstances of the loss. The creditor has
no duty to show that the debtor was at fault.

When presumption not applicable

In case of natural calamities , the
presumption of fault does not apply. Lack
of fault on the part of the debtor is more
likely. So it is unjust to presume
negligence on his part .

Examples:
1. D borrowed the car of C . On the due date of
the obligation , D told C that the car was
stolen and that he was not at fault. That is
not enough to extinguish Ds obligation. It is
presumed that the loss was due to his fault.
Hence, he is liable unless he proves the
contrary.
2. Suppose the house of D was destroyed
because of fire. It is admitted that there was
s a fire and it was accidental and that the car
was in the house at the time it occurred.
Here, D is not liable unless C proves fault on
the part of D. (Arts. 1174,1262.)

ART. 1266. the debtor in obligations to

do shall also be released when the
prestation becomes legally or
physically imposible without the fault
of the obligor.

this article refers to a case when, without the

debtors fault becomes legally or physically
imposible . The impossibilty of performance
will result in the extinction of the
obligation.
This impossibility must take place after a
constitution of the obligation. If the
obligation is impossible from the very
beginning, the obligation is void..( see arts.
1183,1348.) in such case, there is no
obligation.

1.

2.

In purely personal obligations, when the personal

qualifications of the obligor are involved , physical
impossibility takes place when, for example, the
obligor dies or physically incapacitated to perform
the obligation.
Legal impossibility occurs when the obligation
cannot be performed because it is rendered
impossible by provision of law, although
physically it may be possible of performance .
Note that Article 1266 makes express reference to
obligations to do or to personal obligations.

EXAMPLES:
1.D obliged himself to paint a picture for C to be finished
within a month. One week after the obligation was
constituted, D met an accident, a as result of which, his arms
were amputated.
Here, the obligation of D has become physically impossible. D
is, therefore, released from his obligation.
2.D agreed to construct a commercial building for C. the
government refused to issue a building permit because the
area has been declared by law as a residential zone.
The obligation of D is, therefore extinguished because it has
become legally impossible. Here, the performance of the
prestation is directly prohibited by law.
3.D agreed to appear as counsel of C in a case. Subsequently,
D was appointed judge of the regional trial court. Under the
law judges of the regional trial courts are prohibited from
engaging in the practice of law. D is, therefore released from
his obligation. Here, the law makes the execution impossible
by impossing upon D duties of superior character which are
incompatible with the performance of the obligation
contracted by him.

ART. 1267. when the service has

become so difficult as to be manifestly
beyond the contemplation of the parties
,the may also released therefrom , in
whole or in part.

The general rule is that impossibility of

performance releases the obligor.
When the performance of the service has become
so difficult as to be manifestly beyond the
contemplation of both parties, the court is
authorized to released the obligor in a whole or
in part. It would be doing violence to the
intention of the parties to hold the obligor still
responsible.(see report of the code
commission,p.133) there is an element of the
unforeseen or fortuitous event in the situation
covered by article 1367.
Article 1267 is applicable not only to (personal)
obligations to do but also to (real ) obligations to
give or to delivered.

D agreed to construct a road near a

mountain. A very strong typhoon caused an
avalanche making construction of the road
dangerous to human lives which was not
foreseen or contemplated by the parties.
In this case, D may be released, in whole or
in part, from his obligation to continue
with the construction.

ART.1268 when the debt of a thing

certain and determinate proceeds

from a criminal offense, the debtor
shall not exempted from the payment
of its price, whatever may be the
cause for the loss

Effect of fortuitous event where

obligations proceeds fro a criminal
offense

Article 1268 is another instance where the

fortuitous event does not exempt the debtor
from liability.
The obligation subsist except when the
creditor refused to accept the thing(e.g.,
property stolen from him) without
justification, after it had been offered to him.
Consignation is not necessary . The debtor ,
however, must still exercise due diligence.

D stole the jeep of C . Here , D the obligation

to return the jeep to C. the obligation of D
arises from an act punishable by law.
Even if the jeep is destroyed without the fault
of D, he shall be liable for the payment of its
price. The exception to the rule is when C is
in mora accipiendi . In either case, D is liable
if the loss is due to his fault.

ART.1269.
The obligation having been
extinguished by the loss of the thing,
the creditor shall have all the rights
of action which the debtor may have
against third persons by reason of the
loss.(1189)

the creditor is given the right to

proceed against the third person
responsible for the loss. There is no
need for an assignment by the debtor.
The rights of action of the debtor are
transferred to the creditor from the
moment the obligation is
extinguished, by operation of law to
protect the interest of the of the latter
by reason of the loss.

Example:
S is obliged to deliver to B a specific horse.
The horse is lost through the fault of T.
The obligation of S is extinguished and he is
not liable to B. such being the case, S would
not be interested in going after T. the law,
however, protects B by giving him the right
to bring an action against T to recover the
price of the horse with damages.

ART.1270. Condonation or remission is essentially

gratuitous, and requires the acceptance by the
obligor. It may be made expressly or impliedly.
one and other kind shall be subject to the rules
which govern inofficious donations. Express
condonation shall , furthermore, comply with the
forms of donation.(1178)

Meaning of condonation or remission

Condonation or remission is the gratuitous abandonment
by the creditor of his right against the debtor.

Requisites of condonation or remission

The requisites are the following:
It must be gratuitous
It must be accepted by the obligor
The parties must have capacity;
It must not be inofficious; and
If made expressly,it must comply with the
forms of donations

Kinds of remission
They are:
As to its extent
a.
Complete- when it covers the entire obligation;
or
b. Partial when it does not cover the entire
obligation.

As to its forms
a)
Express- when it is made either verbally or in
writing ; or
b) Implied when it can only be infered from
conduct.

As to its date of effectivity

a)
Inter vivos when it will take effect during the
lifetime of the donor; or
b) Mortis causa when it will become effective
upon the death of the donor. It must comply
with the formalities of a will.

Effect of inofficious remission

While a person may make donations, no one can give
more than that which he can give by will ;
otherwise, the excess shall be in officious and shall
be reduced by the court accordingly.
As a rule, testamentary disposition which impair the
legitime shall be reduced on petitions of the heirs
(see art. 887.) insofar as they are inofficious or
excessive .
incidentally, legitime is that part of the testators
property which he cannot dispose of because the
law has reserved it for certain heirs (like the
children with respect to their parents) who are,
called compulsory heirs.

ART. 1271. The delivery of a private document

evedencing a credit, made voluntarily by the
creditor by the debtor, implies the renunciation of
the action which the former had againts the latter.
If in order to nullify this waiver it should be claimed
to be inofficious, the debtors and his heirs may
uphold it by proving that the delivery of the

document was made in virtue of payment of the

debt.

Presumption of implied remission

if the debt is not yet paid, the creditor would need the
document to enforce payment. In case he voluntarily
delivers it to the debtor, the only logical inference is that
he is renouncing his right.

Contrary evidence
The presumption is prima facie or rebuttable by
contrary evidence . Evidence is admissible to show
otherwise, as when a receipt signed by the creditor
was delivered only from examination by the client
(lawyer) of the amount of attorneys fees to be paid
by the latter.

Extent of remission- if the obligation is joint,

the presumption of remission pertains only to
the share of the debtor who is in posession of
the document ; if solidary, to the total
obligation.

Presumption applicable only to private

document- Article 1271 speaks of a private
document . The legal presumption of
remission does not apply in the case of a
public document because it is easy to obtain
copy of the same, being a public record.

PAYMENT, NOT REMISSION DEBT

Under the second paragraph of Article
1271, the renunciation of the action which the
creditor had against the debtor may be
nullifilled or invalidated by a showing that the
waiver is inofficious. In other words the
remission becomes null and void upon proof
that it is inofficous .
The debtor or his heirs may prove that the
delivery of the document was really made in
virtue of payment of the debt and not of
remission.

ART. 1272. Whenever the private

document in which the debt appears is

found in the possession of the debtor,
is shall be presumed that the creditor
delivered it voluntarily, unless the
contrary is proved.

PRESUMPTION IN CASE DOCUMENT FOUND IN

POSSESSION OF DEBTOR.

Ordinarily, the document evidencing the debt

is in the possession of the creditor. He has in his favor
the legal presumption that his credit is as yet
uncollected, unless the debtor proves satisfactorily, by
one of the rules recognized in law, that he has already
paid the claim.
If the document is later found in the hands of debtor and it
is not known how he came into possession on the same,
presumption is that it was voluntarily delivered by the
creditor. This presumption of voluntary delivery , in turn
, gives rise to the presumption of remission.
It is believed, however , that presumption of
voluntary delivery should give rise to the presumption of
payment and only when it is known that indeed there is
no payment should there be presumption of remission.

EXAMPLE:
D owes C 1,000.00php evidenced by a
promissory note. The note, signed by D, is given
to C.
If the promissory note is involuntarily
delivered to D, the presumption is that the debt
must have been paid by D.
If it is known that D has not yet paid C, it
must be presumed that the obligation has been
remitted by C. (Art.1271)
Suppose it is not known how D came into
possession of the promissory note. The
presumption is that it was not voluntarily
delivered by C, unless C proves the contrary
(Art.1272.)

ART.1273. The renunciation of the principal

debt shall extinguish the accessory
obligations; but the waiver of the latter shall
leave former in force. (1990)

EFFECT OF RENUNCIATION OF THE PRINCIPAL

OF THE ACCESSORY OBLIGATION.
The above provision follows the rule
that the accessory follows the principal. While
the accessory obligations, the latter may
exists without the principal obligation, the
latter may exist without the former.

EXAMPLE:
D owes C 1,000.00php with G as a
guarantor. The principal debt here is the
1,000.00php, while the accessory
obligation is the guaranty of G.
The remission of the debt of D by C shall
extinguish the guaranty of G is condoned,
the obligation of D shall remain in force.

ART. 1274. it is presumed that the

accessory obligation of pledge has

been remitted when the thing pledge,
after its delivery to the creditor, is
found in the possession of the debtor,
or of a third person who owns the
thing.

Presumption in case thing pledged found

in possession of debtor.
in a contract of pledge, it is necessary that he thing
pledged be placed in the possession of the creditor,
or of a third person by common agreement. A third
person who is not a party to the principal obligation
may secure the latter by pledging his own property.

If the thing pledged is later found in the hands of the

debtor or the third person only the accessory
obligation of pledged is presumed remitted, not the
obligation itself. the debtor shall continue to be
indebted but he does not have to return the thing
pledged. The presumption yields to contrary
evidence. It does not arise if the third person in
possession of the thing pledged does not own the
same.

Example:
D delivers to C his diamond ring in pledge to
guaranty the payment of a loan , if latter on
the ring is found in the possession of D , the
presumption is that C has agreed to the loan
without the pledge.
C may prove that he returned the ring to D
up[on the latters request to be delivered
back to him.

ART.1275. the obligation is extinguished

from the time the characters of creditor and

debtor are merged in the same person.

Meaning of confusion or merger

confusion or merger is the meeting in one

person of the qualities of creditor and debtor

with respect to the same obligation.

Reason or Basis for confusion

1. The law treats confusion or merger as a mode of
extinguishing obligations because if a debtor is
his own creditor, enforcement of the obligation
becomes absurd since a person cannot claim
payment from himself.
2. Furthermore, when there is a confusion of rights
the purposes for which the obligations may have
been created are deemed realized .

Requisites of confusion

For a valid confusion or merger to take place, it is necessary

that :

1. It must take place between the principal debt and

creditor ;and
2. It must be complete.

Example:
1.

2.

3.

D owes C 10,000.00, for which D executed as

negotiable promissory note in favor of C.C indorsed
the note of E who, in turn indorsed it to F. Now F
bought goods from the store of D . Instead of paying
cash, F indorsed the promissory note to D.
Here, D owes himself. Consequently, his obligation is
extinguished by merger.
X and Y are the heirs of Z. In his will, Z gave to X a
parcel of land in usufruct for ten years. The naked
ownership to the same parcel was given to Y. Later, Y
sold his interest in the land to X.
In this case, the usufruct is naturally extinguished
and X will now have full ownership over the land.
D borrowed money from C. As security, D mortgaged
his land. Subsequently, D sold the land to C.
In this case, the mortgage is extinguished, but the
obligation subsists. The extinguishment of the
accessory obligation does not carry with it that of
the principal obligation.

ART. 1276. Merger which takes place in the

person of the principal debtor or creditor

benefits the guarantor.
Confusion which takes place in the person of
any of the latter does not extinguish the
obligation.

Effect of merger in the person of principal

debtor or creditor.

Merger in the person of the principal debtor or

creditor extinguishes the obligation. Hence, the
accessory obligation of the guaranty is also
extinguished in accordance with the principal
that the accessory follows the principal.

Example:
D is indebted to C with G as guarantor.
The merger of the characters of
debtor and creditor in D shall free G
from liability as guarantor.
Similarly , merger which takes place in
the person of C benefits G because
the extinction of the principal
obligation carries with it that of the
accessory obligation of guaranty.

Effect of merger in the person of

guarantor .
The extinguishment of the accessory
obligation does not carry with it that of the
principal obligation . Consequently, merger,
which takes place in the person of the
guarantor, while it extinguishes the
guaranty, leaves the principal obligation in
force .

Example :
Suppose, in the example above, C assigns his
credit to E who, in turn, assigns the credit
to G, the guarantor.
In this case, the contract of guaranty is
extinguished, however, Ds obligation to
pay the principal obligation subsists . G
now , as the new creditor, can demand
payment from D.

ART.1277.Confusion does not extinguish a joint

obligation except as regards the share

corresponding to the creditor or debtor in whom
the two character concur.(1194)

Confusion in a joint obligation

In a joint obligation, there are as many debts as

there are debtors and as many credit as there are
creditors , the debts and /or credits being
considered distinct and separate from one
another.
Each debtor hah his own creditor to whom he is
liable and confusion taking place in the person of
any debtor or creditor does not effect the others.
In other words, the confusion will extinguish only
the share corresponding to the creditor or debtor
in whom the two characters concur.

Example :

A, B and C are jointly liable to D in the

amount of 9,000php evidence by a
negotiable promissory note. D indorsed
the note to E, who, in turn, indorsed it to
A.
In this case , As share in the obligation is
extinguished because of confusion in his
person . However, the indebtedness of B
and C in the amount of 3,000php each
remains , because as to them there is no
confusion . Consequently, B and C
would be liable to A, the new creditor,
3,000php each.

Confusion in a solidary obligation

Merger in the person of the solidary debtors
shall extinguish the entire obligation because
it is also a merger in the other solidary
debtors . Remember that in a solidary
obligation there is only one obligation and
every debtor is individually responsible for
the payment of the whole obligation.
He also makes payment may claim
reimbursement from his co-debtors for the
shares which correspond to them.

Example :
in the example given, if the obligation of A, B and
C to solidary, the indorsement to A extinguishes
the entire obligation of 9,000.00php . A can
demand reimbursement from B and C.
Here, the basis of the right of A is not the original
obligation which has been extinguished by the
confusion which takes place in his person but the
confusion itself. It is as if A paid the entire debt .
He can, therefore, collect the proportionate
shares belonging to B and C on an implied
contact of reimbursement.

Art. 1278. Compensation shall takes place when

two persons, in their own right, are creditors and

debtors of each other.

Meaning of Compensation

is the extinguishment to the concurrent

amount of the debts of two person who, in their
own right, are debtors and creditors of each
other.
It involves the simultaneous balancing of two
obligations in order to extinguish them to the
extent in which the amount of one is covered by
that of the other.

Example :
A owes B the amount of 1,000.00php.
B owes A amount of 700.00php.
Both debts are due and payable today. Here,
compensation takes place partially, that is, to
the concurrent amount of 700.00php. So, A
shall be liable to B for only 300.00php.
if the two debts are the same
amount, there is total compensation. The two
debts are extinguished w/out actual transfer
of money between the parties.

 In

Confusion, There
is only one person
who is a creditor
and debtor himself.
There is but one
obligation.
There is imposibility
of payment.

There are two

involved, each of
whom, is a debtor
and a creditor of the
other.
There are two
obligations.
There is indirect
payment.

1.By its effect or extent:

a)
Total when both obligations are the same amount and are
entirely extinguished
b)
partial- when the two obligations are of different amounts
and a balance remains. The extinctive effect of
compensation will be partial only as regards the larger
debt.
2.By its cause or origin:
a)
Legal- when it takes place by operation of law even w\o the
knowledge of the parties .
b)
Voluntary- when it takes place by agreement of the parties.
c)
Judicial- when it takes place by order from a court in a
litigation, strictly speaking, judicial compensation is merely
a form of legal or voluntary compensation when declared
by the courts by virtue of an action by one of the parties,
who refuses to admit it, and by the defense of the other
who involves it.
d)
Facultative- when it can be set up only by one of the parties

ART.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 the same quality if
the latter has been stated;
3. That the two debts are due;
4. That they be liquidated and demandable;
5. That over neither of them there be any
retention or controversy, commenced by third
person and communicated in due time to the
debtor.

1.

The parties are principal creditors and

principal debtors of each other

Examples:
a) A owes B 1,000.00.
B owes A 1,000.00.
Compensation will take place because A and B
are principal debtors and creditor of each other.
(b) A owes B1,000.00 with C as guarantor.
B owes C 1,000 00.
The will be no compensation between B and C
because while B is principally liable to C,C is
merely subsidiarily liable to B. Hence, C can
demand payment from B.

(c)

A owes B 1,000.00.
B owes A 1,000.00, the latter as guardian or
administration.

There will also be no compensation. In this

case, A is personally liable to B, while B is not
principally liable to A. The real creditor of B is the
ward under guardianship or the estate under
administration. A is creditor of B in a
representative capacity.
(d) A owes B,C, and D (partners in partnership P)
1,000.00
P owes A 1,000.00.
A cannot set up compensation because B,C, and D,
are not principally liable to A.

A (stockholder ) owes B (corporation ) for

amounts A collected as treasurer of B.
B owes A amount representing overpayment
by A of his stocks.
Compensation was held proper as A and B are
mutually debtor and creditors of each.
(f) A owes B 1,000.00 in the latters capacity as
administration of his fathers estate.
B owes A 1,000.00 representing debt of Bs
father.
Compensation was held proper because the credit
of A is chargeable against the estate under Bs
administration.
(e)

2.

Both debts consist in a sum of money, or

of consumable things of the same kind and
quality.

Example:
(a) A owes B 1,000.00
B owes A an electric range worth 1,000.00.
No compensation will take place.
A obliged himself to deliver to B 10 sacks of rice while
B obliged to himself to A 10 sacks of corn.
Compensation will not also take place because the things
due are not of the same kind. Neither will there be
compensation if the obligation of A is to deliver 10
sacks of macan rice, while that of B is to deliver 10
sacks of wagwag rice.
(b)

(c) A owes B 10 sacks of wagwag rice.

B owes A any 10 sacks of rice;
There can be no legal compensation in this case
because of the lack of identity of the kind and
quality of the rice due.
Compensation can be claimed by B since he can
deliver any kind of rice. It would be the same as if
B received 10 sacks of wagwag rice from A and
then returned the same to A in payment of his
debt.
But A cannot set up compensation if opposed by B.
This is an example of facultative compensation.

(d) A owes B a specific horse.

B owes A another specific horse.

Compensation cannot be set up by A or
B unless both agree.
(e) A owes B any horse.
B owes A any horse.
Compensation will take place in this case,
although the things due are not
consumable since the things due are of
the same kind. As to their quality, Article
1246 governs.

A owes B 5,000.00
B owes A 5,000.00 or a cow.
There can be no legal compensation because B may
prefer to deliver a cow. But if the right of choice
belongs to A, compensation will take place.
(3) The two debs are due or demandable.
Example:
A owes B 1,000.00due today.
B owes A 1,000.00 due next month.
Compensation cannot take place as the debts are not
due on the same date. However, if A has not yet paid
B on the date that the obligation of B becomes due,
there will be compensation on that date.
If the debt of B is subject to a suspensive condition
which has not yet happened , there can also be no
compensation.
(f)

The two debts are liquidated.

Examples:
A owes B 1,000.00php
B owes A the share of the latter in a business the
amount of which is still to be ascertained.
4.

Compensation will not take place as a debt of B is

not liquidated.
If part of the debt of B has been liquidated,
compensation takes place with respect to that
part without waiting for the liquidation of the
rest.

5.

No retention or controversy commenced by a third

person.

This is a negative requisite for legal compensation. The other such

requisite is that the compensation is not prohibited by law.
Of course, compensation will not take place where there is waiver.
There is said to be retention when the credit of one of the parties
is subject to the satisfaction of the claims of a third person, while
a controversy exists when a third person claims he is the creditor
of one of the parties.
Example:
A owes B 10,000.00php
B owes A 10,000.00php
C causes the garnishment of the credit of B against A and notifies A not
to pay B 10,000.00php as C has a better right to the said amount.
B may not owe C but the latter claims that he and not B is the creditor
of A.

In this case, compensation cannot take place between A and B in view

of a controversy commenced by C, a third person . In the
meantime, the compensation is suspended.
If C loses the case, compensation shall be deemed to have taken place
as of the date the requisite for legal compensation concurred.

THATS ALL

THANK YOU!