debts prior to it, and not to the subsequent ones. (Article 1198, part 2, Civil Code.) But if the assignment was made without the knowledge of the debtor he can set up the compensation of the credits prior to it and to the subsequent ones until he acquires knowledge of the assignment. (Article 1193, part 3, Civil Code.) The surety may also set up the compensation with regard to the debt which the creditor should owe the principal debtor. (Article 1197, Civil Code.) There are other several cases that may be proposed, but all of them may be solved by taking into consideration the principle that compensation does not take place but between persons who are mutually creditors and debtors of each other, whether they be those by whom the debts were constituted, or those who succeeded them, in their obligations and rights, or their respective sureties. (See Gochongco vs. Dievas, 12 Phil. 250.)

The debts must consist of money or things of the same kind. This requisite is necessary because, compensation being another mode of payment, it is necessary that the objects or things in which a debt may consist of may serve as payment to the other; and as only between money or between fungible things of the same kind and quality this circumstance may be verified, because only between them lie the exactness and similarity required in what is to be mutually exchanged, hence, the necessity of this requisite is obvious. Such are the dispositions of law 21, tit. XV, Partida V, and article 1196, part 2, Civil Code. If the debts do not consist in money or fungible things of the same kind and quality, compensation cannot be made either by law or by a competent authority, except by mutual agreement of the parties interested if they agree to appraise the prices of the things constituting the debts and to extinguish them as to the concurring amount, if of unequal value, or wholly if the value of each be the same. (3 Viso 100.)

The debts must be liquidated. The debts must be liquidated, otherwise they cannot be compensated without express, agreement of the parties. (Article 1196, part 4, Civil Code; see Luengo and Martinez rs. Herrero, 17 Phil. 29.) If the debt be subject to a suit or to the payment of certain undetermined indemnity it cannot be compensated with another, certain and fixed, unless its certainty and quantity be shown within ten days in the same action when it is an ordinary proceeding. (Law 20, tit. XIV, Partida 5; Articles 1559 and 544 of the Enjuiciamiento Civil.)

The debts must be demandable.-This means that the debts be demandable by both parties. From this it may be inferred: (1) That the debt subject to a period cannot be compensated, because if no body can be compelled to verify the payment before maturity, compensation can neither take place, as this is a sort of payment. (Decision of the Supreme Court of Spain, 15 of April 1890.) However if the period be only granted by the judge or gratuitously, in this case compensation may proceed; (2) That a pure debt cannot be compensated with another conditional, unless it is so agreed upon by the interested parties; (3) Neither can be compensated those other debts which do not confer any action on the creditors, like those which have been contracted in gamblings forbidden by law or those already extinguished by prescription. (3 Viso 101.)

The debts must not be precluded from the operation of compensation.-By reason of this requisite compensation does not take place: (1) In the restitution of a deposit, either necessary or voluntary, because the depositary and his heirs must restore the things to their owner without having a right to retain them except as a lien for the extraordinary expenses incurred in the thing, in which case he can retain them until he is reimbursed (article 1200, Civil Code, article 1780, Civil Code; see Luengo & Martinez vs. Herrera, 17 Phil. 29); (2) In the restitution of the thing, loaned in comodatum even when extraordinary expenses were made on the thing, which can only be claimed after the restitution is made. (Articles 1200 and 1747 Civil Code); (3) Against an action brought for support by way of gratuitous title, because the support of a person has a preferential right over the debt of the recipient. (Article 1200, part 2, Civil Code); (4) When a person is sentenced to pay to another certain amount of money by reason of certain violence or injury done to the latter. (Law 27, tit. XIV, Partida 5); (5) Compensation is not also admissible with respect to a debt arising from public assessments, whether of the state or of a municipality. (3 Viso 101.) Finally, if a person has several compensatory debts, the compensa tion shall be observed in the manner provided for with regard to the imputation of payments. (Article 1201, Civil Code.)

Effects of Compensation.-The following are the effects of compensation: (1) The debts are extinguished by operation of law, although the causes which may give rise to them are not the same. If the debts are of the same amount the extinction is total, and if not, the extinction will only be limited to that part of the concurrent amount of both debts, even though neither the creditor nor the debtor had a knowledge thereof. (Article 1202, Civil Code; see Luengo & Martinez vs. Herrero, supra); (2) The privileges, mortgages, pledges, and interests attached thereto are also thereby extinguished either totally, or to the extent of the amount compensated and the sureties are likewise discharged in the same proportion. (8 Manresa 414); (3) Should one of the parties have several debts, the one due and more onerous to the debtor by reason of interest, mortgage or other incumbrances, will be considered extinguished; but should there be no difference between the debts, they will be extinguished proportionately as pointed out in speaking about imputation of payments. It is operative from the moment the two debts co-exist. (Luengo & Martinez vs. Herrero, supra; 8 Manresa 415.)

B. Discharge by Performance under American Law-Concept.-Where a promise has been given on an executed consideration, performance of the promise by the promissor necessarily discharges the contract, for the obligation, existing between the parties, is thereupon extinguished. But when the contract is wholly executory, i. e., when one promise is given in consideration of another, performance by one party does not discharge the contract, although it discharges him from further liability. (9 Cyc. 601; Elliott on Contracts, Vol. III, sec. 1875.)

Form.-Under the modern Common Law rule, a substantial performance in all respects in good faith, is sufficient to satisfy the law. A strict performance is no longer required, as a condition precedent to recovery. The question as to whether or not the contract has been performed is usually a question of fact. But it may in some instances be a question of law, or at least, so clear under the evidence that the court will not permit if there be contrary to the evidence, to stand. (Elliott on Contracts, Vol. III, secs. 1878, 1887.)

Time and place of performance. The time and place of performance are matters depending largely upon the terms and constructions of the particular contract. It may be said generally that, under the strict common law rule, time is usually regarded as of the essence of the contract and attempted performance made after the time stipulated is not strictly performance in the eye of the law; but in equity the rule is more liberal and time is not now regarded as of the essence of the contract unless it is clear that such was the intention of the parties; and where no time is fixed by the contract, the law usually implies that performance is to be made within a reasonable time. (Elliott on Contracts, Vol. III, sec, 1877.)

Performance by payment.

(a) In General.-Payment is the most common form of performance. It is, the delivery of money or its equivalent by one person from whom it is due to another person to whom it is due. In its most general acceptation, it means the fulfillment of a promise, the performance of an agreement, the accomplishment of every obligation, whether it consists in giving or doing. As used in its strict legal sense, there must be (1) a delivery, (2) by the debtor or his representative, (3) to the creditor or his representative, (4) of money or of something accepted by the creditor or as the equivalent thereof, (5) with the intention on the part of the debtor to pay the debts in whole or in part, (6) accepted as payment by the creditor. (30 Cyc. p. 1180.)

(b) Effect.-Payment discharges the debt pro tanto. A payment made by one of the two joint debtors extinguish the debt pro tanto. On the other hand a payment of his share of the debt by one or two joint and several debtors does not release him. Payment of a debt by a stranger although without the debtor's request, if accepted as such by the creditor, discharges the debt so far as the creditor is concerned. (30 Cyc. 1220-1221.)

Application of Payment. Definition.-Application of payment "is the application of a payment made by the debtor to his creditor to one or more of several debts owing the creditor by the debtor." (30 Cyc. 1227.) The rule is not confined to payment made in money but is extended to payment made in commodities or services. (Young vs. Harris, 36 Ark. 132.)

Rights of the parties

(a) of debtor.-The general rule is that a debtor paying money to his creditor has the primary and paramount right to direct the application of his money to such items or demands as he chooses, provided the payment is a voluntary one. (30 Cyc.

1228.) The reason for this rule is that up to the time of payment the money is the property of the debtor and being such may be applied as he sees fit and directs. But the debtor may use this right if he makes a payment without any direction as to its application. (California Bank vs. Webb, 94 N. Y. 467; Elliott on Contracts, Vol. III, sec. 1939.)

(b) Right of Creditor.-According to Common Law rule in force in most of the States, a creditor may apply a payment voluntarily made by the debtor without any specific application where there are two or more debts, to whichever debt he pleases so as to best subserve his own interests. But there is a limitation to this rule, where the particular application would be inequitable and unfair and would enable the creditor to inflict an injustice on the debtor. (Arnold vs. Johnson, 2 Ill. 196.) By the rule of the Civil Law, the creditor was bound to make his application at the time of the payment, but at Common Law, the creditor is not compelled to exercise his right at the time the payment is made. There is much conflict among the authorities, as to how long the right exists. But the weight of authority is that the creditor must make it at least before suit is brought. (30 Cyc. pp. 1233-1238; Elliott on Contracts, Vol. III, secs. 1940-1941.)

(c) Right of Court.-When neither party makes the application, the law, through the court, will make the same in accordance with the intention of the parties if ascertainable, and if not, in accordance with certain general rules that are supposed just and equitable and will best protect and maintain the rights of both debtor and creditor. This subject was recently considered in the following Indiana and North Carolina Cases: Barrett vs. Sipp (Ind. App.), 98 N. E. 310; Stene vs. Rich (N. Car.) 75 S. E. 1077; (30 Cyc. pp. 1239-1241; Elliott on Contracts, Vol. III, sec. 1942.)

Tender. Definition.-Tender "is an offer to perform a contract or to pay money, coupled with a present ability to do the act." It imports not merely the readiness and ability to pay or perform, but also the actual production of the thing to be paid or delivered over and offer it to the proper person; (Holmes vs. Holmes, 12 Barb. (N. Y.) 137, 144); and the act of tender must be such that it needs only acceptance. (38 Cyc. p. 131.)

Requisites. (a) The tender must be made by the debtor or his agent and not by a mere stranger; (b) Must be made to the party entitled to receive it, or his agent; (c) Where the contract calls for payment in money, the tender must be made in money which is the legal tender, unless there is a waiver, whether express or implied; (d) The money must be actually produced, unless the requirement is waived, either expressly or impliedly; a mere readiness and willingness to pay, even though expressed, is not sufficient; (e) The tender must refer to the whole amount due; it may be greater but not smaller, otherwise would be ineffective for the creditor is not bound to accept less than the whole amount of his demand; (f) The tender must be made at the place fixed in the contract; if there is none or where the creditor may be

found, at the creditor's residence or place of business; if none of this is available, then the debtor may select any suitable place and make a delivery there, with notice to the creditor, if he can be found; (g) The tender must be made on the very day the performance is due. A premature tender is ordinarily of no effect. This rule in some States has been changed by statute and in others, by decisions of courts. But if no time is fixed for the performance or tender, the rule is that it may be made within a reasonable time; (h) The tender must be unconditional in order to be effective, this, however, has certain qualifications; (i) The tender must be kept good, i. e., must be deposited into court. (Elliott on Contracts, Vol, III, secs. 1956-1973.)

Efect. Ordinarily a tender of money does not operate as a satisfaction of the debt and is no bar to an action thereon; the effect being to discharge the debtor from a liability for interests subsequent to the tender, or damages that would accrue by reason of nonperformance, and the costs afterward incurred. Although a creditor by refusing to accept does not forfeit his right to the thing tendered, he does lose all collateral benefits or securities, such as lien of an attorney, of a pledge, of a mortgage and mechanic's liens.

C. By Agreement under Spanish Law.

1. Remission. Concept.-"It is an act of liberality by which the obligee who receives no price or equivalent thereof, renounces the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers." (8 Manresa 355.) Or, "The gratuitous abandonment by the creditor of his right." (IV Sanchez Román 422.) Remission "is the release made by the creditor of the whole or part of what is due." (3 Viso 105.)

Requisites. In order that there may be a valid remission, the following requisites must be present:

(a) Must be gratuitous, because from the moment an equivalent be given in return, its nature is thereby transformed into either an imputation of payments, if something else is received instead of the money due; or a novation, if the object and circumstances of the obligation be changed. (8 Manresa 355.)

(b) The obligation must be demandable at the time of the remission, because if there is a period within which to make the payment and such period has not yet elapsed, the right to demand has not yet accrued and therefore the creditor cannot yet dispose of the same; the same is true when the right is already prescribed. (8 Manresa 356.)

(c) The creditor or creditors must have legal contractual capacity, because the remission transmits ownership, and it is for this reason that minors, insane persons and the like are disqualified to exercise this mode of remission.

(d) It must not be exercised to defraud creditors. (Law 12, tit, XV, Partidas V, VI, VII, tit. XXXII, book XI Nov. Recon.)