Compensation Reviewer
— when both obligations are of
Meaning of Compensation
ART 1278 Compensation is the
extinguishment to the concurrent amount of
the debts of two persons who, in their own
right, are reciprocally principal debtors and
creditors of each other. (Arts. 1278, 1290.)
It involves the simultaneous balancing of
two obligations in order to totally extinguish
them if they are of the same amount or to
the extent in which the amount of one is
covered by that of the other, if of different
amounts.
Requisites of Legal Compensation
(1) The parties are principal creditors and
principal debtors of each other.
(2) Both debts consist in a sum of money,
or of consumable things1 of thesame kind
and quality. —
(3) The two debts are due or demandable.
(4) The two debts are liquidated.
(5) No retention or controversy has been
commenced by a third person.
Kinds of compensation.
(1) By its effect or extent:
(a) Total.
the same amount
and are entirely extinguished (Art. 1281.);
or
(b) Partial. — when the two obligations
are of different
(2) By its cause or origin:
(a) Legal. — when it takes place by
operation of law when
all the requisites are present even without
the knowledge of the
parties (Arts. 1279, 1290.);
(b) Conventional or voluntary. — when
it takes place by
agreement of the parties (Art. 1282.);
(c) Judicial. — when it takes place by
order from a court in a
litigation. (Art. 1283.) Strictly speaking,
judicial compensation is
merely a form of legal or voluntary
compensation when declared
by the courts by virtue of an action by one
of the parties, who
refuses to admit it, and by the defense of
the other who invokes it
(8 Manresa 403.); or
(d) Facultative. — when it can be set up
only by one of the
parties. (see Arts. 1287, par. 1; 1288.)