SECTION 5.

Compensation Requisites of legal compensation

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
same kind, and also of the same quality if the latter
has been stated;
3. That the two debts be due:
-Compensation may also take place when so declared
by a final judgment of a court in a suit. A party may set
off his claim for damages against his obligation to the
other party by proving his right to said damages and
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)