Article 1278

Compensation
By: Gretzen M. Colona

Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

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.

Ang compensasyon ay magaganap kung parehong may utang at nagpautang ang bawat isa sa isa't isa.

Example: D owes C 5000 Php. C owes D 5000 Php.

The parties do not need to pay each other as their obligations are extinguished by compensation.

Kinds of Compensation

1. By its effect or extent.

a. Total- when both obligations are of the same amount. 
b. Partial- when the two obligations are of different amounts.

2. By its cause or origin:

a. Legal- when it takes place by operation of law even without the knowledge of the parties.

b. Voluntary- when it takes place by agreement of the parties.

c. Judicial- when it takes place by order from a court of litigation.

d. Facultative- when it can be set up only by one of the parties.

Illustration of Facultative Compensation:

A owes a white Bugatti Veyron to B, and B owes A a car (generic). There can be no legal compensation bec. the lack of identity in the things due. But since B can deliver any car to A , as long as it is not poor quality. B can set up the compensation by delivering back to A the Bugatti Veyron, in the performance of B's obligation.

YAP UNKI,Plaintiff-Appellee,

vs.

CHUA JAMCO,Defendant-Appellant.

Rafael Del-Pan for appellant.

Thomas D. Aitken for appellee.

CARSON, J.:

Facts:

On November 10, 1906, plaintiff and defendant executed a written agreement whereby the business partnership then existing between them was dissolved, and plaintiff sold and defendant bought plaintiff’s interest in the partnership for the sum of P1,728.94, payable in three installments, as set out in the agreement. The amended complaint alleged that the total indebtedness thus contracted by the defendant had become due and payable and had not been paid in whole or in part at the time when that complaint was filed. Judgment was rendered in the court below in favor of the plaintiff and against the defendant for P1,728.94 together with interest upon the various installments from the date when they fell due. From this judgment defendant appealed, and the case is now before us on his bill of exceptions.

Issue: Whether or not all of the deferred payments had become due and payable when the original complaint was filed in this action?

Ruling: Appellant having made no assignment of error on this ground we are not called upon to review the action of the court in this regard. The judgment already rendered will be modified or not in accordance with defendant’s success or failure in establishing the damages alleged in this counterclaim.