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    Compensation. Study Guide

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    Ann Go
    Compensation involves the extinguishment of concurrent debts between two parties who are debtors and creditors to each other. Legal compensation occurs automatically by operation of law while facultative compensation can only be invoked by one party. Compensation is similar to payment in that the rules on application of payments can apply to compensation situations. Compensation may occur when only one debt is due if the other party has not yet paid their debt by the due date of the first debt. However, compensation requires the debts to be monetary or involve consumable goods of the same kind and quality. If one debt is later annulled, compensation will be treated as if it did not occur and the party whose debt was annulled remains liable.

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    Compensation. Study Guide

    Uploaded by

    Ann Go
    738 views1 page
    Compensation involves the extinguishment of concurrent debts between two parties who are debtors and creditors to each other. Legal compensation occurs automatically by operation of law while facultative compensation can only be invoked by one party. Compensation is similar to payment in that the rules on application of payments can apply to compensation situations. Compensation may occur when only one debt is due if the other party has not yet paid their debt by the due date of the first debt. However, compensation requires the debts to be monetary or involve consumable goods of the same kind and quality. If one debt is later annulled, compensation will be treated as if it did not occur and the party whose debt was annulled remains liable.

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    Compensation involves the extinguishment of concurrent debts between two parties who are debtors and creditors to each other. Legal compensation occurs automatically by operation of law while facultative compensation can only be invoked by one party. Compensation is similar to payment in that the rules on application of payments can apply to compensation situations. Compensation may occur when only one debt is due if the other party has not yet paid their debt by the due date of the first debt. However, compensation requires the debts to be monetary or involve consumable goods of the same kind and quality. If one debt is later annulled, compensation will be treated as if it did not occur and the party whose debt was annulled remains liable.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    738 views1 page

    Compensation. Study Guide

    Uploaded by

    Ann Go
    Compensation involves the extinguishment of concurrent debts between two parties who are debtors and creditors to each other. Legal compensation occurs automatically by operation of law while facultative compensation can only be invoked by one party. Compensation is similar to payment in that the rules on application of payments can apply to compensation situations. Compensation may occur when only one debt is due if the other party has not yet paid their debt by the due date of the first debt. However, compensation requires the debts to be monetary or involve consumable goods of the same kind and quality. If one debt is later annulled, compensation will be treated as if it did not occur and the party whose debt was annulled remains liable.

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    © All Rights Reserved
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    of 1

    SECTION 5 – COMPENSATION

    STUDY GUIDE

    I. DEFINITIONS III. PROBLEMS


    Define or give the meaning of the following: Explain or state briefly the rule or reason for your
    answer.
    1. Compensation – It is the extinguishment to the
    concurrent amount of the debts of two persons who, 1. D borrowed P50,000 as character loan (no
    in their own right, are debtors and creditors of each security) from a bank. Despite demands for
    other. payment after the loan fell due, D did not pay
    the bank. D has a savings deposit of P40,000
    2. Legal compensation – It is the compensation with the bank. Has the bank the right to apply
    when it takes place by operation of law even without the deposit to the payment of D’s debt?
    the knowledge of the parties.
    Yes, according to article 1287, since the other
    3. Facultative compensation – It is the party is a bank deposit. It may apply the deposit
    compensation when it can be set up only by one of to the payment of D’s debt.
    the parties.
    2. D owes C P10,000 payable on November 20.
    II. DISCUSSIONS C owes D P10,000 payable on October 20.
    1. What are the distinctions between confusion Can compensation also take place although
    and compensation as modes for the debts are not payable on the same date?
    extinguishing an obligation?
    According to article 1282, the parties may agree
    The distinctions between confusion and upon the compensation of the debts which are
    compensation include the following: not yet due. Thus if C and D would agree,
     In confusion, there is only one person who is compensation can take place. It can also
    a creditor and debtor of himself, while in happen if by October 20 D hasn’t paid C yet.
    compensation, there are two persons
    involved, each of whom is a debtor and a 3. Illustrate compensation which can be set up
    creditor of the other. only by one parties.
     In confusion, there is but one obligation,
    According to articles 1287, 1288, if A deposited
    while in compensation, there are two
    obligations. an object to B, B the depository cannot claim
    compensation. However, A can set up his
     In confusion, there is impossibility of
    deposit as a compensation to B. Also if B
    payment, while in compensation, there is
    borrowed the thing, only A can set up the
    indirect payment.
    compensation.
    2. In what way is compensation similar to
    4. After contracting a debt in the amount of
    payment?
    P10,000 in favour of C, D succeeded through
    fraudulent means to make C liable to him in
    According to Article 1289, compensation and
    the same amount. Assuming that both
    payment is similar in a way due to the fact that
    obligations are now due, may the two debts
    the rules on the application of payments can be
    be compensated against each other? What is
    applied to compensation if a person should have
    the effect if the debt of C is later annulled in
    against him several debts which are susceptible
    court at the instance of D?
    of compensation.
    According to article 1284, they may be
    3. May there be compensation although the
    compensated, However, when C’s debt is later
    things due are not consumable? Explain.
    annulled, D is still liable to C because the
    annulment will make it seem like as if there had
    NO. According to article 1279, there will be no
    been no compensation.
    compensation if both debts are not in the form of
    sums of money or consumable things of the
    same kind and quality.

    4. When may compensation take place when


    only one of the debts is due?

    According to article 1279, compensation may


    take place when A has not yet paid B on the
    date that B’s obligation becomes due, and the
    compensation will be on that date.

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