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    Compensation As A Mode of Extinguishing Obligations 1

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    Rhos Bernadette Suico
    Compensation is the extinguishment of concurrent debts between two parties who are both debtors and creditors to each other. For legal compensation to occur, the debts must be (1) owed between principal parties, (2) consist of money or consumable goods, (3) be due, (4) be liquidated, and (5) not subject to retention or claim by a third party. Compensation differs from confusion in that it involves two parties and two obligations rather than one party becoming both creditor and debtor to themselves through one obligation. Compensation is similar to payment in indirectly satisfying debts between two parties in a more convenient manner than direct payment. Compensation can apply even if the goods owed are not consumable

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    Compensation As A Mode of Extinguishing Obligations 1

    Uploaded by

    Rhos Bernadette Suico
    2K views2 pages
    Compensation is the extinguishment of concurrent debts between two parties who are both debtors and creditors to each other. For legal compensation to occur, the debts must be (1) owed between principal parties, (2) consist of money or consumable goods, (3) be due, (4) be liquidated, and (5) not subject to retention or claim by a third party. Compensation differs from confusion in that it involves two parties and two obligations rather than one party becoming both creditor and debtor to themselves through one obligation. Compensation is similar to payment in indirectly satisfying debts between two parties in a more convenient manner than direct payment. Compensation can apply even if the goods owed are not consumable

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    Compensation as a Mode of Extinguishing Obligations 1

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    Compensation is the extinguishment of concurrent debts between two parties who are both debtors and creditors to each other. For legal compensation to occur, the debts must be (1) owed between principal parties, (2) consist of money or consumable goods, (3) be due, (4) be liquidated, and (5) not subject to retention or claim by a third party. Compensation differs from confusion in that it involves two parties and two obligations rather than one party becoming both creditor and debtor to themselves through one obligation. Compensation is similar to payment in indirectly satisfying debts between two parties in a more convenient manner than direct payment. Compensation can apply even if the goods owed are not consumable

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views2 pages

    Compensation As A Mode of Extinguishing Obligations 1

    Uploaded by

    Rhos Bernadette Suico
    Compensation is the extinguishment of concurrent debts between two parties who are both debtors and creditors to each other. For legal compensation to occur, the debts must be (1) owed between principal parties, (2) consist of money or consumable goods, (3) be due, (4) be liquidated, and (5) not subject to retention or claim by a third party. Compensation differs from confusion in that it involves two parties and two obligations rather than one party becoming both creditor and debtor to themselves through one obligation. Compensation is similar to payment in indirectly satisfying debts between two parties in a more convenient manner than direct payment. Compensation can apply even if the goods owed are not consumable

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    COMPENSATION: AS A MODE OF EXTINGUISHING OBLIGATIONS

    1. Definitions

    (a) Compensation is the extinguishment to the concurrent amount of the


    debts of two persons who, in their own right, are debtors and creditors
    of each other.
    (b) Legal compensation requisites:
    a.) The parties are principal creditors and principal debtors of each
    other.
    b.) Both debts consists in a sum of money, or of consumable things of
    the same kind and quality.
    c.) The two debts are due or demandable.
    d.) The two debts are liquidated.
    e.) No retention or controversy commenced by a third person.

    (c) Facultative compensation, when it can be set up only by one of the


    parties. Example: Rachelle Anne Daquis owes a white Bugatti Veyron to
    Ashley Rivera and Ashley Rivera owes Rachelle Anne Daquis a car
    (generic). There can be no legal compensation because of the lack of
    identity in the things due.

    2. Discussions

    (a) What are the distinctions between confusion and compensation as


    modes for extinguishing an obligation?
    The differences are:
    (1) In confusion, there is only one person who is a creditor, and debtor of
    himself, while in compensation, there are two persons involved, each of
    whom is a debtor and a creditor of the other;
    (2) In confusion, there is but one obligation, while in compensation, there
    are two (2) obligations; and
    (3) In confusion, there is impossibility of payment, while in compensation,
    there is indirect payment.

    There may be compensation in joint and solidary obligations.

    PAGE 1
    (b) In what way is compensation similar to payment?

    The objective of compensation is the prevention of unnecessary litigations


    and payments. This is accomplished through the mutual extinguishment by
    operation of law of concurring debts of two (2) persons.
    Compensation is often called simplified payment because it provides a
    more convenient and less expensive effectuation of payment between two
    (2) persons who are reciprocally creditors and debtors.

    (c) May there be compensation although the things due are not
    consumable? Explain.
    Example: Racy Ann Oliva owes Amanda Magdia any horse.
    Anna Magdia owes Racy Ann Oliva any horse.

    Compensation will take place in this case, although the things due are not
    consumable since the things due are of the same kind.

    3. Quizzes

    (a) Ella Hake borrowed, P 50,000 as character loan (no security) from a
    bank. Despite demands for payment after the loan fell due, Ella Hake did
    not pay the bank. Ella Hake has a savings deposit of P 40,000 with the
    bank. Has the bank the right to apply the deposit to the payment of Ella
    Hake’s debt?
    Answer:

    (b) Bella Padilla owes Yam Concepcion P 10,000 payable on November 20,
    2020. Yam Concepcion owes Christine Reyes P10,000 payable on
    October 20. Can compensation also take place although the debts are
    not payable on the same date?

    Answer:

    (c) After contracting a debt in the amount of P 10,000 in favor of Jen


    Revilla, Debbie Garcia succeeded through fraudulent means to make Jen
    Revilla liable to him in the same amount. Assuming that both
    obligations are now due, may the two debts be compensated against
    each other? What is the effect if the debt of Jen Revilla is later annulled
    in court at the instance of Debbie Garcia?
    Answer:

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