Compensation occurs when two parties are creditors and debtors to each other. For compensation to be valid legally, several requisites must be met: (1) the parties must each be principal creditors and debtors to each other, (2) the debts must consist of money or consumable goods of the same kind and quality, and (3) the debts must be due and demandable. Compensation can be total if the debts are of equal amount, or partial if the amounts differ, resulting in a balance remaining.
Compensation occurs when two parties are creditors and debtors to each other. For compensation to be valid legally, several requisites must be met: (1) the parties must each be principal creditors and debtors to each other, (2) the debts must consist of money or consumable goods of the same kind and quality, and (3) the debts must be due and demandable. Compensation can be total if the debts are of equal amount, or partial if the amounts differ, resulting in a balance remaining.
Compensation occurs when two parties are creditors and debtors to each other. For compensation to be valid legally, several requisites must be met: (1) the parties must each be principal creditors and debtors to each other, (2) the debts must consist of money or consumable goods of the same kind and quality, and (3) the debts must be due and demandable. Compensation can be total if the debts are of equal amount, or partial if the amounts differ, resulting in a balance remaining.
Art. 1278. Compensation shall take place when two Article 1270 enumerates the requirements or requisites persons, in their own right, are creditors and for legal compensation. debtors of each other. (1195) Compensation is the extinguishment to the 1.The parties are principal creditors and principal concurrent amount of the debts of two persons who, in debtors of each other. their own right, are debtors and creditors of each other. (Arts.1278,1279) 2.Both debts consist in a sum of money, or of consumable things of the same kind and quality. Compensation and confusion distinguished. 3.The two debts are due or demandable. Confusion Compensation 1.There is only one 1.There are two persons 4.The two debts are liquidated. person who is a creditor involved, each of whom and debtor of himself. is a debtor and a creditor 5.No retention or controversy commenced by a third 2.there is but one 2.there are two person. obligation. obligations 3.there is impossibility of 3.there is indirect payment. payment Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up Kinds of compensation compensation as regards what the creditor may owe the principal debtor. 1.By its effect or extent: (a) Total – when both obligations are of the Compensation benefits guarantor. same amount and are entirely extinguished. (Art.1281) -This article is an exception to the rule that only the (b) Partial – when the two obligations are of principal debtor can set up against his creditor what different amounts and a balance remains. The the latter owes him. extinctive effect of compensation will be partial only as regards the larger debt. Article 1281. Compensation may be total or partial. When the two debts are of the same amount, there 2.By its cause or origin: is a total compensation. (a) Legal – when it takes place by operation of law even without the knowledge of the parties Total and partial compensations. (Arts.1279,1290) -applies to all the different kinds of compensation. (b)Voluntary – when it takes place by agreement of the parties (Art.1282) Article 1282. The parties may agree upon the (c) Judicial – When it takes place by order compensation of debts which are not yet due. from a court in a litigation. (Art.1283) (d) Facultative – when it can be set up only by Voluntary compensation. one of the parties. -This provision of law is an exception to the general rule that only debts which are due and demandable Art. 1279. In order that compensation may be can be compensated. proper, it is necessary: Article 1283. If one of the parties to a suit over an 1.That each one of the obligors be bound obligation has a claim for damages against the principally, and that he be at the same time a other, the former may set it off by proving his right principal creditor of the other; to said damages and the amount thereof.
2.That both debts consist in a sum of money, or if Judicial compensation.
the things due are consumable, they be of the -Compensation may also take place when so declared same kind, and also of the same quality if the latter by a final judgment of a court in a suit. A party may set has been stated; off his claim for damages against his obligation to the other party by proving his right to said damages and 3. That the two debts be due: the amount thereof.
4. That they be liquidated and demandable;
5. That over neither both of them there be any
retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196)