COMPENSATION

COMPENSATION – Set off; it is a mode of extinguishment to the concurrent amount the obligation of persons who are in their own right reciprocally debtors or creditors

REQUISITES:
a. Both parties must be mutually creditors and debtors - in their own right and as principals

b. Both debts must consist in sum of money or if consumable , of the same kind or quality

c. Both debts are due

d. Both debts are liquidated & demandable (determined)

e. Neither debt must be retained in a controversy commenced by 3rd person & communicated w/ debtor (neither debt is garnished)

Kinds:

a. legal – by operation of law; as long as 5 requisites concur- even if unknown to parties & if payable in diff places; indemnity for expense of exchanges; even if not equal debts – only up to concurring amount

b. conventional – agreement of parties is enough, forget other requirement as long as both consented

c. facultative – one party has choice of claiming/opposing – one who has benefit of period may choose to compensate

- not all requisites are present

- depositum; commodatum; criminal offense; claim for future support; taxes

d. judicial – set off; upon order of the court; needs pleading & proof; all requirements must concur except liquidation

e. total – when 2 debts are of the same amount

f. partial – when 2 debts are not of the same amount


Effect of assignment of credit to 3rd person; can there still be compensation

a. if made after compensation took place – no effect; compensation already perfected

b. if made before compensation took place – depends

1. with consent of debtor – debtor is estopped unless he reserves his right & gave notice to assignee

2. with knowledge but w/o consent of debtor – compensation may be set up as to debts maturing prior to assignment

3. w/o knowledge – compensation may be set-up on all debts prior to his knowledge