What are the requisites for compensation?

1. The parties are principally bound to each other as creditors and debtors of each

2. both debts consist in a sum of money or if consumable are of the same kind and
quality if stated

3. The two debts are due

4. They are liquidated and demandable

5. Neither of them have a retention or controversy commenced by 3rd person and

communicated in due time to the debtor

Can a guarantor use compensation against the creditor of his debtor?

Yes, the guarantor can set up compensation between his debtor and the creditor

Does compensation need compensate the entire debt?

No there can be partial compensation and total compensation

What is contractual compensation?

It is when the parties agree to compensate debts that are not yet due

What is compensation by judicial set off?

It is when a party can claim damages from the other, the other party can set it off by
proving his right to the damages and amount there of

What are the cases of compensation when assignment of debt has happened?
1.The debtor cannot set up compensation against the assignee of the creditor if the
assignor was not notified by the debtor that he reserves his right to compensation

2. Creditor communicated cession to the debtor but the debtor did not consent to it
the debtor can set up compensation of debts previous to the cession

3. Assignment is done without the knowledge of the debtor he can set up

compensation of debts previous to the cession and until he has knowledge of the
assignment

Who pays for the expense of compensation?

The one who can only partially compensate the other

In what cases is compensation not proper?

1. Debts from common datum or depostorium
2. claim of support due by gratuitous title
3. debt arises from civil liability
How is compensation applied by one who has several debts?
The rules on application of payments is applied

If all the requisites for compensation are present is there compensation by

operation of law even if the parties do not know?
Yes, when all the requisites are present compensation takes place even fi the
creditors and debtors are not aware.

How are obligation modified through novation?

1. Change in object
2. Chance in principal conditions
3. Substitution of the person of the debtor
4. Subrogation of a 3rd person of the rights of the creditor

What are the requisites for the extinguishment of an obligation via substation of
another obligation?
1. Declared in unequivocal terms
2. Old and new obligation are incompatible on every point

What are the effects of novation through substitution of the debtor if it was done
with his knowledge and will or without it or if he becomes insolvent?
1. Novation through substitution of the old debtor without his knowledge or consent
; payment by the new debtor will let him recover from the old debtor up to the
extend the odl debtor was benefited

2. If the novation was done without the knowledge or consent of the old debtor the
new debtors insolvency or non fulfillment will not make the old debtor liable

What are the effects of novation through substitution of the debtor if it was done
with his consent and knowledge if he becomes insolvent?
General Rule: The substation of the old debtor with the new debtor and accepted by
the creditor will not make the old debtor liable if the new one is insolvent
Exceptions
1. Insolvency was already existing and of public knowledge
2. insolvency known to the debtor when debt was delegated

What happens if there is novation but the new obligation is void or the old
obligation was void
General Rule: The old obligation continues
Exception: The parties provided it is extinguished in any case
General Rule: The new obligation is boig
Exceptions
1. Anullment maybe claimed by the debtor
2. ratification validates voidable acts.

If there is novation of the original obligation, doe the suspensive or resulatory

conditions subsit?
1. The new obligation is under the same conditions unless provided otherwise

What are the two kinds of novation through subrogation of a 3rd person of the rights
of the creditor?
Legal subrogation which based on law and conventional subrogation which is based
on the stipulations of the parties

What is required for legal subrogation of a 3rd person of the rights of the creditor?
1. Consent of the original parties and 3rd person

When is there presumption of legal subrogation?

1. Creditor pays a preferred creditor without debtor knowledge
2. 3rd person not interested in fulfillment of the obligation pays with the express or
tacit approval of the debtor
3. Without knowledge of the debtor a person interest in the fulfillment of the
obligation pays

What are the general effects of subrogation?

GR: Subrogation transfer to the person subrogated all the rights against the debtor
or 3rd persons

Exceptions: In conventional subrogation the parties can stipulate as to the extent or

limts of the rights transferred.

If there has been partial payment of a debt by a 3rd person when payment is
demanded by the creditor and 3rd person who is preferred to be paid?
1. The creditor who still has a partial balance to be collected is preferred.