Group 10

Section 4: CONFUSION OR MERGER OF RIGHTS

Section 5: COMPENSATION
TOPICS
SECTION 4
01 CONFUSION OR MERGER OF RIGHTS

(Art 1275, 1276, 1277)

SECTION 5
02 COMPENSATION

(Art 1278, 1279, 1280, 1281, 1282,

1283, 1284, 1285, 1287, 1288, 1289,
1290)
Let's get Ga m e
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o f

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 Art 1275
The obligation is extinguished

from the time the character of

creditor and debtor are merged

on the same person(1192a)

Confusion of Rights Defined

Confusion of rights a mode of extinguishing an

obligation whereby the character of creditor

and debtor are merged in the same person.

 Art 1276
Merger which take place in
the person principal debtor
or creditor benefits the
guarantors. Confusion which
takes place in the person of
any of the latter does not
extinguish the obligation.
(1193)
 Effect of merger between
principal debtor or creditor.
Merger which take place in the person of the

principal debtor or creditor benefit the

guarantors. Because the guarantors have a special

promise to answer for the dept.

Effect of confusion on joint
obligation.
- Confusion Which takes place in any of the

latter does not extinguish the obligation.

ART. 1277
Confusion does not
extinguish a joint obligation
except as regards the share
corresponding to the
creditor and debtor in
whom the two characters
concur. (1194
Effect of confusion on joint
obligation.
- Confusion does not affect a joint obligation

except as regards the share corresponding

to the creditor or debtor in whom to

characters occurs.
 Section 5
Compensation

Art 1278
Compensation shall take place
when two persons, of their own
right, are creditors and debtors of
each other. (1195)
 Compensation defined

Compensation is the return which is given

for something else; a consideration.

 Art. 1279
In order that compensation be proper, it is necessary:
1.That each one of the obligators be bound
principally, and the he be at the same time a principal
creditor of the other.
2. That the 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;
 Art. 1279
In order that compensation be proper, it is necessary:
3. That the two debts be due;
4. That they be liquidated and dependable;
5. That over neither of them there be any retention or
controversy, commenced by third person and
communicated im due time to the debtors. (1196)
Requisites of Compensation

The requisites for compensation to be

proper are set forth in article 1279, Civil
Code.
 Art. 1280
Notwithstanding the provisions of the preceding

article, the guarantor may set up compensation as

regards what the creditor may owe the principal

debtor. (1197)
 Art. 1280 - Guarantor May Set Up
Compensation
•Guarantor may set up compensation.
•Subject to provisions of Article 1279, Civil Code
•Compensation can be set up against what creditor owes.
•This law provisions affirms guarantor's right.
 Art. 1281

Compensation may be total or partial.

When the two debts are of the same

amount, there is a total compensation.

 Art. 1281 Kinds Of Compensation
• Compensation can be total or partial.

• Total compensation: debts are of the same amount.

• Partial compensation: debts are of different amounts.

• Allows for flexibility in compensating debts.

 Art. 1282

The parties may agree upon the compensation of debts

which are not yet due.

 Art. 1282 Parties Free To Agree
Compensation Of Debts Not Yet Due
• Parties can agree on compensation of debts not yet due.
• Article 1282 of Civil Code allows such agreements.
• Obligations have the force of law between parties.
• Parties are bound by their agreement- obligations arising
from contracts have the force of law between the contracting
parties and should be complied with in good faith. .
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

providing his right to said damages and the

amount thereof.
Naruto owes Sasuke Php 10, 00. When Sasuke
demanded payment, Naruto failed to pay. In anger,
Sasuke damaged the property of Naruto to the
extent of Php 9, 000.
Naruto can set off the obligation of Sasuke to pay
him damages in the amount of Php 9, 000 against
his debt of Php 10, 000.
 Art. 1283 Set-off Defined.
•Set-off: A counterdemand by defendant against plaintiff.
• Involves liquidating the plaintiff's demand wholly or
partially.
• Operates a cross-action in court
• A set-off involves a defendant's demand to counter-balance,
in whole or in part, the plaintiff's demand.
 Distinction Between Compensation And
Set-off .

•Compensation takes place by operation of law

•Set-off must be pleaded to be effective.

•Compensation extinguishes both debts simultaneously.

• Set-off involves active legal pleading.

 Recoupment And Set-off Distinguished
• Recoupment and set-off are counterclaims
• Recoupment arises from the same transaction.
• Set-off is based on a different transaction
 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. 1284 Compensation Before Rescission
And Nullity
• Debts may be compensated before judicial rescission.

• Applicable to rescisible or voidable debts.

• After rescission, compensation becomes impossible.

• Compensation can prevent nullification of obligation.

 Art. 1285
The debtor who has consented to the assignment of the rights made by a creditor in
favor of a third person, cannot 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 one until he had knowledge
of the assignment. (1198a)
 Effect of debtor' consent to creditor's
assignment of rights.
The debtor who has consented to the aigment of rights made
by a creditor in favor of a third person, cannot set up against
the assignee the compensation which would pertain to the
debtor, unless the assignor was notified by the debtor at the
time he gave his consent that he reserved his right to the
compensation. This is so because the assignment of rights has
the effect of novation.
 Effect of communication by the creditor to
the debtor of cession.
If the creditor communicated the cession to him but
the debtor did not consent there to, the latter may set
up the compensation of debt previous to the cession,
but not of subsequent one. Because the right of
compensation between the debtor, and creditor of the
former debtor had already existed before the new
contract. The right to compensation in the subsequent
ones has to be agreed upon yet by the subsequent
parties to a virtually new contract.
 Effect of assignment without the knowledge
of the debtor.
If the assignment is made without the knowledge of the
debtor, he may set up compensation of all credits prior to the
same and also later ones until knowledge of the assignment.
Because compensation is a right presumed by law.
Knowledge here is equivalent to consent and because of such
consent to the assignment, there is need for the assignee
debtor to agree or not to the compensation.
 Art. 1287
Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary
or of a bailee in commodatum.
Neither can compensation be set up against a creditor who
has a claim for support due by gratuitous title, without
prejudice to Neither can compensation be set up against a
creditor who or of a bailee in commodatum. the provisions of
paragraph 2 of article 301. (1200a)
Deposit defined

A deposit is the act of placing, or the state

of being placed, for safekeeping or profit,

as in a bank, anything given as security or

pledge.
 When compensation not proper.

Compensation shall not be proper when one of the debts arises

from a depositum or from the obligation of a depositary in a
commodatum. Because a depositary and a bailee in commodatum
are not the owners of the thing deposited and in commodatum.
Neither can compensation be set up against a credit to who has a
claim for support without prejudice to paragraph 2 of article 301.
Because a claim for support is merely speculative.
Art 1288

Neither shall there be compensation if one

of the debts consists in civl liability arising

from a penal offense.

 No compensation against the
government.
Article 1288, Civil Code, provides that: "Neither shall there be

compensation if one of the debts consists in a civil liability

arising from a penal offense. Because compensation cannot be

allowed against the sovereign State itself. The State is not an

ordinary creditor or debtor.

Art 1289

If a person should have against him several

debts which are susceptible of

compensation, the rules on the application

payments shall apply to the order of the

compensation. (1201)
Application of rules on application of payments.
If a person should have against him several debts which

are susceptible of compensation, the rules on

application of payments shall apply to the order of

compensation. Because compensation is in effect a kind

of payment for an obligation in another form

 Art. 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. 91202a)
Requisites for compensation.
In Article 1279 of the Civil Code, in order that
compensation may he proper, it is necessary that:
(1) each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) 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;
Requisites for compensation.
In Article 1279 of the Civil Code, in order that compensation
may he proper, it is necessary that:
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor.
Compensation by operation of law.
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."
 The end!

Thank you for listening!

Presented By:
Gade, Vernel L.
Pinca, Jimboy M.
Reyes, Mylene