Compensation PDF

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Summary of the lesson in Compensation on the subject Law on Obligations and Contracts...

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COMPENSATION ART. 1278- Compensation must take place between 2 persons, both are debtors and creditors of each other Compensation- Also called as “simplified payment” -

Extinguishment of concurrent amounts (may it be total or partial) if both are debtors and creditors of each other, smaller amount is extinguished, larger amount has a balance that needs to be paid

Object of Compensation- Prevention of unnecessary litigation (process of taking legal action) and payments Compensation vs. Confusion Confusion

Compensation

Only one person (debtor and creditor himself)

Two persons involved

One obligation

Two obligations

Impossibility of Payment

Indirect Payment

There may be compensation in joint and solidary obligations Kinds of Compensation(1) By its effect or extent: (a) Total- same amount, total extinguishment (b) Partial- different amounts, balance remains, partial only to the larger debt (2) By its cause or origin: (a) Legal- operation of law even without the knowledge of parties (b) Voluntary- agreement of parties (c) Judicial- order from a court in a litigation, legal or voluntary compensation declared by courts by one of the parties (d) Facultative- set up by only one party ART. 1279- Requisites of compensation: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other - if there is a guarantor, there is no compensation between the creditor and guarantor because the guarantor is merely subsidiarily liable -if the creditor is a guardian or administrator, ward under guardianship or the estate under administration

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; - Even if same amount but one is money and the other one is object amounting to same amount of money, still no compensation -Facultative Compensation: A owes B 10 sacks of wagwag rice (no compensation) B owes A any 10 sacks of rice (there is compensation) -A owes B a specific horse B owes A another specific horse No compensation unless both agree - A owes B any horse B owes A any horse There is compensation - A owes B Php 5000 B owes A Php 5000 or a cow There is no compensation since B can deliver the cow unless A is given the right of choice (3) That the two debts be due; - Must be on the same date but if one did not yet pay on the due date of the other then there will be compensation on that date, ex: A owes B Php 1k due today while B owes A Php 1k due next month, if A has not yet paid B on the due date of B, there will be compensation on that date - If the debt of B is subject to a suspensive condition, there is no compensation (4) That they be liquidated and demandable; - Demandable (legally possible) (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196) - Negative requisite for legal compensation

case C

- A owes B, B owes A, B owes C: In this case, compensation between A and B is suspended because C claims that he has a better right of the payment from A, in loses the case, there can be compensation between A and B

ART. 1280- The guarantor is liable if the debtor cannot pay the creditor, he is liable may it be partial or total ART. 1281- Compensation may be total or partial, if same amount, there is total compensation ART. 1282- The parties can agree upon the compensation of debts not yet due, exception to the general rule or requisites of legal compensation. Called voluntary or conventional compensation, even if all the requisites are not present, only needed is the contract of the parties which declares compensation ART. 1283- Judicial compensation, sue the other party for damages and providing the amount thereof, even if he is liable to the other party, he can ask for damages if given declaration from a final judgement of a court

ART. 1284- Rescissible and voidable obligations are valid until they are judicially rescinded or avoided, before the rescission or annulment, compensation is valid but if the debt is annulled by court after compensation, the result is as if there is no compensation, the other party is still liable, the effect of annulment is retroactive. ART. 1285(1) Where compensation has taken place before assignment (a) Operation by law, debts are extinguished (b) A owes B due yesterday, Php 3k B owes A due yesterday, Php 1k Here, A still owes B Php 2k B assigns his right to C, C can only collect 2k from A But if, A gave his consent to the assignment before it was made, it is as if no compensation took place, A will lose the right to set up the defense of compensation, A will pay C Php 3k, and he can still collect Php 1k from B (2) Where compensation has taken place after assignment (a) Assignment with the consent of the debtor A owes B 3k due on Nov. 15 B owes A 1k due on Nov. 15 B assigned his right on Nov. 1 with the consent of A Nov. 15- A will pay C 3k, A can collect 1k from B If there is a reservation of right by A, he will only pay C 2k (b) Assignment with the knowledge but without the consent of the debtor A owes B 1k due on Nov. 1 B owes A 2k due on Nov. 10 A owes B 1k due on Nov. 15 A assigned his right to C on November 12, A informed B but B did not consent B can set up compensation dated Nov, 10, before the cession on Nov. 12 so B is liable to C for1k On November 15, A will pay B 1k (c) Assignment without the knowledge of the debtor Same example above but B learned the assignment of rights on November 16, B can set up compensation of credits before and after the assignment. Crucial time is when B acquired knowledge and not the date of the assignment ART. 1286- Compensation may be payable at different places given that the person who raises the defense of compensation should pay the expenses of monetary exchange and expenses of transportation

Foreign exchange- conversion of an amount of money or currency of one country into the equivalent of it to another country Exchange Rate- price of one currency expresses or quoted in relation to another currency

ART. 1287- Compensation shall not be allowed by law if one of the debts arises (1) From a Depositum: - Deposit from banks (compensation allowed) - Deposit because you are entrusted to keep a certain thing (compensation not allowed, because this is based on trust and confidence), in case the debtor failed to pay, the creditor can file an action against him for the recovery of the amount owed by the debtor - Facultative Obligation: But a debtor can actually set up the deposit as a compensation, the benefit granted by law, this is only available to A as the depositor and this can be waived by him (2) From a Commodatum: - The creditor borrowed a thing from the debtor, he cannot use this as compensation against the debtor, purpose of this is to prevent breach of trust and confidence on the part of the borrower - Same above, the debtor can compensate, based sa value san object, identify if same amount ba or partial la (3) Arises from a Claim support due by Gratuitous Title: - Support from a family, example, father and child - The child owes his father, the father needs to give support still to his child, may it be for sustenance, dwelling, clothing, medical, attendance, education and transportation - However, if the father failed to support the child, this can be considered as a compensation. This just means that A can survive even without the support of a father. ART. 1288- Compensation shall not be allowed by law if one of the debts (1) Consists in Civil Liability arising from a Penal Clause - The offended party can claim the right of compensation ART. 1289- If a debtor has various debts which are susceptible of compensation, he must inform the creditor which of them shall be the object of compensation. Failure to inform, then the compensation shall be applied to the most onerous obligation (onerous describes a contract or lease that has more obligations than advantages) ART. 1290- When all of the requisites are present, mentioned in Art. 1279, compensation takes effect by operation of law and this extinguishes both debts and concurrent amount, even though both parties aren’t aware of the compensation. (1) Compensation takes place automatically by mere operation of law- Necessary requisites present, without need of consent of the both parties and even without their knowledge (2) Full legal capacity of parties not required- not required that the parties have full legal capacity, to give or to receive, as the case may be....