ART. 1277.

Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur. (1194)

Confusion in a joint obligation

EXAMPLE:

A, B, and C are jointly liable to D in the amount of P9,000.00 evidenced by a negotiable promissory note.
D endorsed the note to E, who, in turn endorsed it to A.

In this case, A’s share in the obligation is extinguished because of confusion in his person. However, the
indebtedness of B and C in the amount of P3,000.00 each remains because as to them there is no
confusion. Consequently, B and C would be liable to A, the new creditor, P3,000.00 each.

Confusion in a solidary obligation

EXAMPLE:

In the example given, if the obligation of A, B, and C is solidary, the endorsement to A extinguishes the
entire obligation of P9,000.00. 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 contract of reimbursement.

ART. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.

EXAMPLE:
 A owes B the amount of P1,000.00. B owes A the amount of P700.00.

Both debts are due and payable today. Here compensation takes place partially, that is, to the concurrent
amount of P700.00. So, A shall be liable to B for only P300.00. If the two debts are of the same amount,
there is total compensation. (Art. 1281.)

The two debts are extinguished without actual transfer of money between the parties.

Just in case lang na itanong

Compensation and confusion distinguished.

The differences are:

(1) In confusion, there is only one person who is a creditor and debtor of himself, while in compensation,
there are two persons involved, each of whom is a debtor and a creditor of the other;

(2) Inconfusion,thereisbutoneobligation,whileincompensation, there are two obligations; and

(3) In confusion, there is impossibility of payment, while in compensation, there is indirect payment.

There may be compensation in joint and solidary obligations. (see Arts. 1207, 1208, 1215.)

Compensation and payment distinguished.

The differences are:

(1) Compensationtakeseffectbyoperationoflaw,whilepayment takes effect by act of the parties;

(2) In compensation, it is not required that the parties have the capacity to give or to receive, as the case
may be (Art. 1290.), while in order that there may be a valid payment, the parties must have the free
disposal of the thing due and capacity to alienate it (Art. 1239.) and to receive payment (Arts. 1240-
1241.), as the case may be; and

(3) In compensation, the law permits partial extinguishment of the obligation (Art. 1281.), while in
payment, it is necessary that it be complete (Art. 1233.) and indivisible. (Art. 1248.)

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 of the same quality if the latter has been stated;
(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor. (1196)

(1) The parties are principal creditors and principal debtors of each other. —

EXAMPLE:


A owes B P10,000.00.

B owes A P10,000.00.

Compensation will take place because A and B are principal debtors and creditors of each other.

(2) Both debts consist in a sum of money, or of consumable thing 1of the same kind and quality. —

EXAMPLES:

(a) A owes B P10,000.00.

B owes A an electric range worth P10,000.00.

No compensation will take place. (see Arts. 1244, 1246.)

(b) A obliged himself to deliver to B 10 sacks of rice while B obliged himself to deliver 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.

(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. (see Arts. 1287, 1288.)

(d) A owes B a specific horse.
 B owes A another specific horse.

Compensation cannot be set up by A or B (see Art. 1244.), unless both agree. (Art. 1282.)

(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.

(f) A owes B P10,000.00
 B owes A P10,000.00 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 debts are due or demandable.—Both debts must also be due or demandable at the same
time, e.g., their performance can be enforced in court, although incurred at different dates.

EXAMPLES:

(a) A owes B P10,000 due today.
 B owes A P10,000 payable upon receipt from A of notice to pay. A
owes C a judgment debt of P10,000.

(b) Since B’s obligation appear to be payable on demand, in the absence of demand made by A, the
obligation of B is not yet due. Without compensation having taking place, B remains indebted to A for
P10,000. This obligation of B may be garnished (see Art. 1293.) in favor of C to satisfy A’s judgment debt.

A owes B P10,000.00 due today.

B owes A P10,000.00 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.

(4) The two debts are liquidated.—A debt is liquidated if the amount thereof is known or can be
determined by a simple computation.

EXAMPLES:

(a) A owes B P10,000.00.

B owes A the share of the latter in a business the amount of which is still to be ascertained.

Compensation will not take place as the 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. (see Art. 1248.)

(5) No retention or controversy has been commenced by a third person.

EXAMPLE:

A owes B P10,000.00.

B owes A P10,000.00.

B also owes C P10,000.00.

C causes the garnishment of the credit of B against A and notifies A not to pay B P10,000.00 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 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 requisites for
legal compensation concurred.

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.

Example:

A owes B 1,000 with G as Guarantor.

B owes A 1,000.

Here, the obligation of guaranty is extinguished by compensation. G may set up/claim compensation. The
reason is that the extinguishment of the principal obligation carries with it the accessory obligation such
as guaranty. But if the compensation is only partial and A cannot pay the balance, G will be liable for the
said balance.

ART. 1281. Compensation may be total or partial. When the two debts are of the same amount,
there is a total compensation. (n)

See art. 1278

EXAMPLE:
 A owes B the amount of P1,000.00. B owes A the amount of P700.00.

Both debts are due and payable today. Here compensation takes place partially, that is, to the concurrent
amount of P700.00. So, A shall be liable to B for only P300.00. If the two debts are of the same amount,
there is total compensation. (Art. 1281.)

ART. 1282. The parties may agree upon the compensation of debts which are not yet due.

Exception to the general rule that only debts due and demandable can be compensated.

Voluntary compensation

Example:

A owes B 10,000 due today.

B owes A 10,000 due next week.

A and B may agree upon the compensation of the two obligations even if B’s obligation is not yet due and
demandable. They may agree on the mutual extinguishment of the obligation.

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 proving his right to said damages and the amount thereof. (n)

Judicial compensation

Example:

A owes B 1,000. When B demanded payment, A failed to pay. In anger, B damaged the property of A to
the extent of 800. A can set off the obligation of B to pay him damages in the amount of 800 against his
debt of 1,000 by proving his right to said damages.

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.

Rescissible- valid until judicially rescinded/annulled

EXAMPLE:

A owes B P10,000.00. Subsequently, A, through fraud was able to make B sign a promissory note that B
is indebted to A for the same amount.

The debt of A is valid but that of B is voidable. Before the debt of B is nullified, both debts may be
compensated against each other if all the requisites for legal compensation are present. (Art. 1279.)

Suppose B’s debt is later on annulled by the court, is A still liable considering that compensation had
already taken place? Yes. The effect of the annulment is retroactive. It is the same as if there had been
no compensation.

ART. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor
of a third person, cannot set up against the assignee the compensation which would pertain 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 ones until he had knowledge of the assignment.
(1198a)

Example:

When compensation has taken place before assignment

EXAMPLE:

A owes B P3,000.00 due yesterday.

B owes A P1,000.00 due also yesterday.

Both debts are extinguished up to the amount of P1,000.00. Hence, A still owes B P2,000.00 today.

Now, if B assigns his right to C, the latter can collect only P2,000.00 from A.

However, if A gave his consent to the assignment before it was made or subsequently (par. 1.), A loses
the right to set up the defense of compensation. So A will be liable to C for P3,000.00 but he can still
collect the P1,000.00 owed by B. In other words, the compensation shall be deemed not to have taken
place.

When compensation has taken place after assignment

(1) Assignment with the consent of debtor. —

EXAMPLE:
 A owes B P3,000.00 due November 15.
 B owes A P1,000.00 due November 15.
 B
assigned his right to C on November 1 with the consent of A.

On November 15, A cannot set up against C, the assignee, the compensation which would pertain to him
against B, the assignor. In other words, A is liable to C for P3,000.00 but he can still collect the P1,000.00
debt of B.

However, if A, while consenting to the assignment, reserved his right to the compensation, he would be
liable only for P2,000.00 to C. (par. 1.)

(2) Assignment with the knowledge but without the consent of debtor. —

EXAMPLE:
 A owes B P1,000.00 due November 1. B owes A P2,000.00 due November 10. A owes B
P1,000.00 due November 15.

A assigned his right to C on November 12. A notified B but the latter did not give his consent to the
assignment. How much can C collect from B?

B can set up the compensation of debts on November 10 which was before the cession on November 12.
(par. 2.) There being partial compensation, the assignment is valid only up to the amount of P1,000.00.

But B cannot raise the defense of compensation with respect to the debt of A due on November 15 which
has not yet matured. So, on November 12, B is liable to C for P1,000.00. Come November 15, A will be
liable for his debt of P1,000.00 to B.

(3) Assignment without the knowledge of the debtor. — EXAMPLE:

In the preceding example, let us suppose that the assignment was made without the knowledge of B who
learned of the assignment only on November 16.

In this case, B can set up the compensation of credits before and after the assignment. The crucial time is
when B acquired knowledge of the assignment and not the date of the assignment. If B learned of the
assignment after the debts had already matured, he can raise the defense of compensation; otherwise,
he cannot.

ART. 1286. Compensation takes place by operation of law, even though the debts may be payable
at different places, but there shall be an indemnity for expenses of exchange or trans- portation to
the place of payment. (1199a)

EXAMPLES:

(1) A owes B $1,000.00 payable in New York. B owes A P28,000.00 (equivalent amount) payable in
Manila.

If A claims compensation, he must pay for the expenses of exchange.

(2) A obliged himself to deliver to B 100 sacks of rice in Davao. B is also bound to deliver to A 100 sacks
of rice of the same kind in Bulacan. The expenses for transportation of the rice to Davao amount to
P4,000.00 and to Bulacan, P1,000.00.

If A claims compensation, he must indemnify B the amount of P3,000.00 for the expenses of
transportation of the rice to Davao.

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 preju- dice to the provisions of paragraph 2 of Article 301. (1200a)

EXAMPLE:

Depositum

A owes B P1,000.00. B, in turn, owes A the amount of P1,000.00 rep- resenting the value of a ring
deposited by A with B, which B failed to return.

Arts. 1287-1288 EXTINGUISHMENT OF OBLIGATIONS 401 Compensation

In this case, B, who is the depositary, cannot claim legal compensation even if A fails to pay his
obligation. The remedy of B is to file an action against A for the recovery of the amount of P1,000.00.

The relation of the depositary to the depositor is fiduciary in character since it is based on trust and
confidence. B’s claim for compensation against A would involve a breach of that confidence.

But A can set up his deposit by way of compensation against B’s credit. This is an example of facultative
compensation. (also Nos. 2 and 4, infra.) The benefit granted by law is available only to A, as depositor,
and can be waived by him. (see Art. 6.)
Commodatum

EXAMPLE:

In the preceding example, if B borrowed the ring of A, B cannot refuse to return the ring on the ground of
compensation because no compensation can take place when one of the debts arises from a
commodatum.

The purpose of the law is to prevent a breach of trust and confidence on the part of the borrower (or
depositary in a depositum).

A, however, can assert compensation of the value of the ring against the credit of B.

Claim for support due by gratuitous title

EXAMPLES:

(1) B is the father of A, a minor, who under the law is entitled to be supported by B. Now A owes B
P1,000.00.

B cannot compensate his obligation to support A by what A owes him because the right to receive
support cannot be compensated with what the recipient (A) owes the obligor (B). The right to receive
support cannot be compensated because it is essential to the life of the recipient. (Report of the Code
Commission, p. 90.)

However, if B failed to support A say, for three months, the support in arrears may be compensated with
the debt of A.6 The reason is that A no longer needs the support in arrears as he was able to exist even
without the support of B.

(2) “A donates to B an allowance of P1,000.00 a month for five (5) years for the latter’s support. However,
previous to the donation, B already owed A P10,000.00 which was due and unpaid.

In this case, A cannot say to B ‘Inasmuch as you owe me P10,000.00, I will not pay your allowance for
ten months.’ ” (see Memorandum of the Code Commission, March 8, 1951, pp. 13-14.)

ART. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising
from a penal offense. (n)

A owes B P1,000.00. B stole the ring of A worth P1,000.00. Here, compensation by B is not proper.

But A, the offended party, can claim the right of compensation. The prohibition in Article 1288 pertains
only to the accused but not to the victim of the crime.

ART. 1289. If a person should have against him several debts which are susceptible of
compensation, the rules on the application of payments shall apply to the order of the
compensation. (1201)

EXAMPLE:
 A is indebted to B in the amount of:

. (1) P1,000.00 without interest due today; 


. (2) P1,000.00 with interest of 12% due to also today; and 


. (3) P1,000.00 with interest of 10% due yesterday. 


B owes A P1,000.00 due today.

For purposes of the application of payment, A is the debtor. He must specify to B which of the three debts
should be compensated. If he fails to inform B, then the latter should apply the compensation to the
second obligation of A, namely, the obligation bearing the 12% interest because it is the most onerous
obligation.

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.

**wala ako mahanap na example, sorry 