78 - Nature of Compensation: The debtor and creditor became the debtor and creditor of each

other. For example, if A and B is the SOLIDARY debtor and liable to pay 200,000 to C and D,
the SOLIDARY creditors but C owes A 200,000 then A and C became the debtor and the
creditor of each other. It will show that the payment has been done because of the debt of C, B
has to pay A his portion (100,000) and D can recover his part (100,000) from C. This takes
effect by operation of law and can be partial extinguishment (Automatic due to requisites).
79 - Requisites of a Legal Compensation: The parties are principal debtors and creditors of
each other (The guarantor is not involved in Compensation). Both debts must be the same kind
and consumable. The two debts must be due or demandable. The two debts are liquidated. No
retention or controversy has been filed by a third person.
80 - Compensation Benefits the Guarantors: Even if the guarantor is just a subsidiary and not
principally bound, he has the right to set up compensation. For example, if A owes B 1,000 and
B owes 500. C is a guarantor of A, so if doesn't have the capacity to pay then C as a guarantor
will pay on behalf of A amounting to 500 pesos given that B has a debt to A worth 500. This just
simply means that C can set up compensation for A.
81 - Compensation may be total (two debts are the same amount) or partial.
82 - Conventional or Voluntary Compensation: There must be agreement for compensation
between the parties. (Article 1279 will not be applicable) The agreement for compensation alone
is valid.
83 - Judicial Compensation or Set Off: A party may set off his claim for damages against his
obligation to the other parties by proving his right to the said damages and the amount thereof.
All requisites under Art 1279 must be present. Exception is when at the time of pleading, the
claim is not yet liquidated. (Compensation may be declared by a final judgment of a court)
84 - Compensation of Rescissible or Voidable Debts: The debts are still valid until its annulled
so since it's valid, compensation is allowed. To avoid unfairness if the rescission is decreed by
the court after the compensation then it is as if there was no compensation occured. Example, if
A owes B 1,000 and through fraud, A made B sign a promissory note that B also owes A 1,000.
85 - Effect of Assignment on Compensation: If all the requisites (under 1279) are present,
regardless if the debtor and creditor is aware, compensation will automatically take place. If
after the obligation was extinguished through compensation and the debt was assigned to a
third person then it will be a useless act because there's no more obligation to comply with
except: When the assignment was made WITH the consent of the debtor. Consent operates as
a waiver of the rights to compensation (defense of compensation cannot be set up). Except to
the exception: when at the time he gave his consent, he reserved his right to the compensation.
In short, the first paragraph is the assignment may be made WITH the consent of the debtor.
For example, if A owes B 1,000 and B owes A 400, here compensation will arise so B can only
compel 600 to A. However, if B assign his right to C, a third person, and A consents to the
assignment of right to C WITHOUT reserving A's right (defense for compensation) then C can
compel 1,000 from A but if he reserved his right with his consent then he can only be forced to
pay 600 by C.
The second paragraph is that the assignment was made WITH the knowledge but WITHOUT
the consent or against the will of the debtor. Compensation can be set up regarding debts
previous to the assignment which means that if the debts are maturing or matured before the
assignment. For example, if A owes B 1,000 due on August 1 and B owes A 2,000 due on
August 8, and A also owes B 1,000 due on August 31 then on August 15, A assigned his right to
C, a third person, WITHOUT the consent of B. B now cannot compel A's debt on August 31
because it is not yet due. And the third paragraph is that the assignment may be made
WITHOUT the knowledge of the debtor. Debtor can set up compensation as a defense for all
debts maturint PRIOR to his knowledge of the assignment, the crucial time here is the time of
knowledge of the assignment and not the time of the assignment [Link] example, if A owes B
1,000 due on August 1 and B owes A 2,000 due on August 8, and A also owes B 1,000 due on
August 20 then on August 15, A assigned his right to C, a third person, WITHOUT the
knowledge and consent of B. On August 31, B learned about the assignment so B can set up
compensation for all the obligations.
86 - Compensation takes place by operation of law, even though the debts may be payable at
different places, but there shall be payment for expenses of exchange or transportation to the
place of payment. For example, A owes B $ 100 in Washington DC and B owes A ₱ 100,000 in
Manila. If A claims compensation, the expenses for the xchange just be borne by him.
87 - Legal Compensation Cannot Take Place: When one debt arises from depositum and
commodatum then compensation shall not be proper. When one debt arises from a claim for
support due by gratuitous title.
88 - No compensation if one debt arises from crime.
89 - The compensation in this provision shall apply the application of payment which means that
if the all the debts of the debtor is susceptible of compensation then the debtor can decide what
obligation can the compensation apply with the knowledge of the creditor, but if the debtor didn't
decide then creditor will decide through the receipts and if neither the two then the
compensation shall be applied to the most Onerous obligation.
90 - If all the requisites (under 1279) are present, regardless if the debtor and creditor is aware,
compensation will automatically take place and extinguish both debts to the concurrent amount.
91 - Nature of Novation Obligation: Obligation may be modified by changing their object or
principal condition, substituting the person of the debtor, subrogating a third person in the rights
of the creditor. Through novation an obligation might be extinguished or there will be a creation
of a new obligation. Requisites are: the existence of previous valid obligation, the intention and
capacity of the parties to extinguish or modify the obligation, the extinguishment of the
obligation, the creation or birth of a valid contract.
92 - Express or Implied Obligation: Express Novation: the new obligation EXPRESSLY declares
that the old obligation will be extinguished or will be subject to novation and there will be a
creation of a new obligation. Implied Novation is done by substantial changes. Instances that
the court states that there's no novation: if it just clarifies the sum amount owed in order for the
would-be buyer to make it easier to comply with the obligation, if the changes consist of time or
place of payment, mode or manner of payment, or ratio of Interest. When the new contract
merely contains supplementary obligations. When additional security is given. When a public
instrument is executed TO CONFIRM a valid contract. Mere extension of the term (period) for
payment or performance.
93 - Substituting a new debtor to the original can be made without the knowledge or against the
will of the original debtor but there must be a consent from the creditor. The payment of the new
debtor gives him the right in Art 1236 to 37.
94 - If substitution is WITHOUT the knowledge or against the will of the original debtor then he
will not be liable in case of insolvency or nonfulfillment of the new debtor. (EXPROMISION)
95 - If substitution is with the consent of the three parties then after the delegacion, the debtor
became insolvent then it shall not revive the obligation of the old debtor. However, if the
insolvency of the new debtor was already existing during the delegacion, even with or without
the knowledge of the old debtor then the latter will still be liable. (DELEGACION)
96 - Generally, if the original obligation was extinguished then the accessory will be also carried
with it. Except when a third person did not give his consent. For example, A owed 1,000 with a
10% interest to B. According to the stipulations, C as the third person will receive the 10%
interest from A. But A and B changed their mind and wanted to just deliver 1 sack of rice. This
means that the third person will still get the 10% interest even though modification of the object
was done since C did not give his consent.
97 - If the new obligation is void then there will be no novation unless the intention of the parties
is to extinguish the original obligation, then it will not exist.
98 - If the old/original obligation is VOID then there's no valid novation but if the obligation is
VOIDABLE so valid novation will exist until annulled.
99 - if the original obligation is subject to condition then the new obligation will also carry the
same condition, unless there's other stipulation.
1300 - Subrogation: Legal is not presumed which means that it is expressly provided and
Conventional must be clearly established in order for it to take effect.
01 - Conventional Subrogation of a third person (new debtor) requires the consent of the original
parties.
02 - it is presumed that there is legal subrogation: If a creditor pays another creditor who is
preferred even without the knowledge of the creditor. For example, A owes 5,000,000 to B with
a security and 10,000,000 to C. C then paid B the whole amount so he became a mortgage
creditor. If a third person who's not interested in the obligation paid the creditor WITH THE
CONSENT of the debtor then he will subrogate to the shoes of the creditor. For example, if A
owes 5,000,000 to B with a security. C as a third person paid the whole amount to B WITH the
consent of A, then subrogation will arise. In other cases, if A didn't approve C to pay for the debt
then subrogation can't be applied. Last is even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays.
03 - Subrogation means that transferring all the right to the creditor, may it be against the debtor
or the third person interested in the fulfillment of the obligation.
04 - Partial Subrogation: If a third person paid a partial amount of the whole debt of the debtor to
the creditor then the third person becomes the new creditor. This means that there's two
creditors, old (for the remaining amount) and new (for the amount the third person paid that he
can compel from the debtor). If ever the debtor can only pay for the partial amount then the
payment must go to the old creditor (preferred) because he is the original creditor.

FINISH LINE FOR OBLIGATION YEY 🫂🤩

1278
 ● Due - Period has arrived or condition has been fulfilled.
● Demandable - No debts has prescribed, all are valid and legal.
● Liquidated - Already known or been determined.

1287
● DEPO′SITUM - The notion of depositum is this: a moveable thing is given by one man to
another to keep until it is demanded back, and without any reward for the trouble of
keeping it. The party who makes the depositum is called deponens or depositor, and he
who receives the thing is called depositarius.
● Commodatum - [Latin, loan, from neuter of commodatus, past participle of commodare
to lend, bestow] : a gratuitous loan of movable property to be used and returned by the
borrower.

1291
● Express - If there's a declaration that there will be novation.
● Implied - If there's no stipulations.

1293
● Expromision - Initiative by a third person and so, the old obligation by the original debtor
will be extinguished and the new debtor will have a new obligation as well. Here, the new
debtor and creditor must consent and the old debtor must be released from his
obligation.
● Delegacion - Substitution of the debtor but the initiative is made by the debtor. Here, the
new and old debtor as well as the creditor must agree in order for the novation to be
valid.

ALL
● Nullify - Can be extinguished.