CAUSES OF EXTINGUISHMENT OF OBLIGATIONS

COMPENSATION

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

Q140. X owes Php10,000 to Y. Y owes Php10,000 to X. Both are due today. Can there be legal compensation here? Explain.

Q141. X owes Php10,000 to Y, with Z as guarantor. Y owes Z Php10,000. Both debts are due today. Can there be legal compensation here? Why or why not?

(2) That both debts consist in sum of money, or of the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

COMPENSATION

Article 1279. In order that compensation may be proper, it is necessary:

(2) That both debts consist in sum of money, or of the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

Q142. X owes Php10,000 to Y. Y owes a rubber shoes worth Php10,000 to X. Can there be legal compensation here? Explain.

Q143. X owes 5 liters of Absolute Mineral Water to Y. Y owes 5 liters of Summit Mineral Water to X. Can there be legal compensation here? Explain.

COMPENSATION

Article 1279. In order that compensation may be proper, it is necessary:

(3) That the two debts must be due;

Q144. X owes Php10,000 to Y payable today. Y owes Php10,000 to X payable next month. Can X tell Y that legal compensation has taken place with respect to the two debts? Why or why not? (Note: Article 1282 - The parties may agree upon the compensation of debts which are not yet due.)

(4) That they be liquidated and demandable;

Note: Liquidated debts are those where the exact amounts have already been determined.

Q145. X owes Php10,000 to Y payable today. Y has borrowed the car of X last month and must return it today, with accessory obligation to pay for repair cost if the car suffers any damage. Y returns the car today, with some dents on the left side due to minor accident. Y estimates that the repair will cost Php10,000. Can there be compensation here?

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Q146. X owes Php10,000 to Y payable on 30 May 2021. Y owes Php10,000 to X payable on 30 May 2021. Y owes Php10,000 to Z payable today. When Z tries to collect Php10,000 from Y, Y informs Z that the debt has already been paid. Denying that the debt has already been paid, Z files a collection suit for Php10,000 against Y. Z asks the court to garnish the credit of Y against X so that if the court determines in the hearing that the debt of Y to Z is still outstanding, X will be ordered to pay his debt of Php10,000 to Z and not to Y. On May 30, 2021 the case in court is still pending. Will there be compensation of the debt of X to Y and the debt of Y to X by 30 May 2021? Explain.

Article 1292 - In order that an obligation may be extinguished by another which substitutes 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.

Q147. What are the requisites of novation?

A147. The following are the requisites of novation:

(1) The existence of a previous valid obligation;

(2) The intention or agreement of the parties to extinguish or modify the obligation;

(3) The extinguishment or modification of the obligation; and

(4) The creation or birth of a new valid obligation.

NOVATION

Q148. On January 30, X obtains a loan of Php10,000 from Y, with X issuing a promissory note to Y or bearer promising to pay the loan on July 30. Thereafter, on February 28, X obtains a second loan of Php10,000 from Y, with X issuing another promissory note to Y or bearer promising to pay the loan on July 30. Is there novation here? Explain.

Q149. On March 30, X obtains another loan of Php10,000 from Y. X and Y agree to consolidate the three (3) loans into one (1) loan, agree that X will issue a new promissory note to Y promising to pay Php30,000 on July 30, and agree finally that this last promissory note replace the two (2) promissory notes previously issued. Is there novation here? Explain.

NOVATION

Q150. On January 30, A promises to give a new car worth Php1 Million to B if B graduates with honor in June 2021. However, on February 28, upon B's request, A and B agree that A will just give Php1 Million in cash to B if B graduates with honor in June 2021. Is there a novation here?

Q151. However, on March 30, A and B mutually agree that A will give the amount of Php1 Million to B if B graduates, even without honor, in June 2021. Is there novation here? Explain.

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 made by the new debtor gives him the rights mentioned in Articles 1236 and 1237.

NOVATION

Types of Passive Subject Novation (Substitution of Debtor)

1. Expromision - the initiative comes from a third person (Article 1294)

2. Delegacion - the initiative comes from the debtor (Article 1295)

Article 1294 - If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligation shall not give rise to any liability on the part of the new debtor.

Requisites of Expromision

a. The initiative must come from a third person;

b. The new debtor (delegado) and the new creditor (delegatario) must CONSENT; and

c. The original debtor (delegante) must be released from his obligation.

Q152. X owes Php10,000 to Y. Z, a friend of X, tells Y: "I will pay you what X owes you." Y agrees. Is there novation here? Explain.

Q153. X owes Php10,000 to Y. Z, a friend of X, tells Y: "I will pay you what X owes you. From now on, consider me as your debtor, not X. X is to be excused. Do you agree?" Y agrees. Is there novation here? Explain.

Q154. Suppose in Q153, Z does not pay P10,000 to Y, can Y go to X to collect the Php10,000? Why or why not?

Requisites of Delegacion

a. The initiative must come from the original debtor (delegante).

b. The substitution is consented by the creditor (delegatario) and by the new debtor (delegado).

c. The original debtor is released from his obligation.

Article 1295 - The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original debtor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when he delegated his debt.

Q155. X owes Php10,000 to Y. X proposes to Y that Z will pay X's debt, and that X will be released from all liabilities. Y and Z agree to the proposal. Is there novation here? Explain.

Q156. Later, when Y tries to collect from Z, Y finds out that Z is insolvent. Can Y go back to X to collect the Php10,000 on the ground that Z in insolvent? Explain.

Article 1300 - Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect.

Subrogation is the transfer to a third person of all the rights belonging to the creditor, including the right to proceed against the guarantors, or possessors of mortgages, subject to any legal provision or modification that may be agreed upon.

Two Types of Subrogation:

1. Legal Subrogation - it takes place by operation of law. (Article 1302)

2. Conventional Subrogation - it takes place by agreement and with consent of the original parties and the new creditor

Article 1302 - It is presumed that there is legal subrogation:

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

(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 the latter's share.

Q157. X has two creditors: Y, a mortgage creditor for Php700,000, and Z, an ordinary creditor for Php500,000. Z, without the knowledge of X, pays X's debt of Php700,000 to Y. When Z informs X and tries to collect from X the debt of Php700,000, X fails to pay. Can Z have the mortgage foreclosed? explain.

Q158. X owes Php700,000 to Y secured by a mortgage on X's only piece of land and payable on June 30. Z, the brother of X, pays X's debt of Php700,000 to Y, with the approval of X.

a. Is Z subrogated in the place of Y, that is, can Z collect the Php700,000 from X on June 30? Explain.

b. If X does not pay the Php700,000 to Z, can Z foreclose the mortgage on the land? Explain

Q159. X owes Php700,000 to Y payable on or before May 30. The debt is guaranteed by Z. Z, without the knowledge of X, pays the Php700,000 to Y today.

a. On May 30, can Z collect the Php700,000 from X?

b. What happens to the guaranty of Z?