SECTION 5

COMPENSATION
ARTICLE 1278 –
CONCEPT OF COMPENSATION – BOTH TWO PERSONS ARE
CREDITORS AND DEBTORS OF EACH OTHER MAYROONG PA RIN
UTANG YUNG ISA’T ISA SAKANILA AND SO THE LAW
INTERVENES SO BOTH THEIR OBLIGATIONS SHALL BE
EXTINGUSIHED.
EXAMPLE, A IS INDEBTED TO B 10,000 BUT B IS ALSO INDEBTED
TO A FOR 10,000
KINDS OF COMPENSATION
1. LEGAL – WHEN IT TAKES EFFECT BY OPERATION OF LAW
FROM THE MOMENT ALL OF THE REQUISITES ARE PRESENT
2. VOLUNTARY - WHEN THE PARTIES ARE MUTUALLY
CREDITORS AND DEBTORS AGREE TO COMPENSATE THEIR
RESPECTIVE OBLIGATIONS, EVEN THOUGH ALLL OF THE
REQUISITES FOR COMPENSATION MAY NOT THEN BE PRESENT
EXAMPLE, A MAY UTANG NG 10,000 KAY B AT SI B MAY UTANG
NA 5K KAY A. THEY CAN AGREE NA YUNG AMOUNT OF 5,000
WILL BE EXTINGUISHED. THERE IS A PARTIAL COMPENSATION
OF A’S OBLIGATION AND B’S OBLIGATION SHALL BE
EXTINGUISHED.
3. JUDICIAL – WHEN IT TAKES EFFECT BY JUDICIAL DECREE
EXAMPLE, A KINASUHAN SI B KASI MAY UTANG SI B KAY A NG
100,000. DURING THE TRIAL, IT WAS PROVEN THAT A MAY
UTANG DIN KAY B NA 100,000. THE COURT WILL DECLARE THE
COMPENSATION.
AS TO EFFECT, COMPENSATION MAY BE
TOTAL –DEBTS TO BE COMPENATED ARE EQUAL IN AMOUNT
PARTIAL – DEBTS TO BE COMPENSATED IS NOT EQUAL IN
AMOUNT

ARTICLE 1279
REQUISITES OF LEGAL COMPENSATION – THE LAW WILL STEP
IN THAT COMPENSATION TOOK PLACE WHETHER THE PARTIES
ARE AWARE OR NOT. IT TAKES EFFECT BY OPERATIONS OF
LAW
A. THERE MUST BE TWO PARTIES, WHO IN THEIR OWN RIGHT
ARE PRINCIPAL CREDITORS AND PRINCIPAL DEBTORS OF EACH
OTHER
B. BOTH DEBTS MUST BE CONSIST IN MONEY, OR IF THE
THINGS DUE ARE FUNGIBLE. THEY MUST BE OF THE SAME KIND
AND QUALITY – ONLY APPLICABLE IN OBLIGATIONS TO GIVE.
C. BOTH DEBTS MUST BE DUE
D. BOTH DEBTS MUST BE LIQUIDATED AND DEMANDABLE –
LIQUIDATED MEANS THE AMOUNT OF WHICH MAY BE
DETERMINED BY SIMPLE COMPUTATION. ALAM NA KUNG
MAGKANO ANG BABAYARAN
E. THERE MUST BE NO INTENTION OF CONTROVERSY
COMMENCED BY THIRD PERSONS – NO THIRD PERSON IS
CLAIMING TO BE THE REAL CREDITOR - WALANG
NAGKUKUNWARI WALANG PARTY ANG NAGPAPANGGAP NA
SILA YUNG CREDITOR
EXAMPLE, A MAY UTANG KAY B NA 10,000. B MAY UTANG KAY
A NA 10,000. BUT, Z SAID WALA KARAPATAN SI B
MANGOLEKTA KAY A NG 10,000 DAHIL SIYA PALA ANG TUNAY
NA PINAGKAKAUTANGAN. IN THIS CASE LEGAL COMPENSATION
IS NO LONGER APPLICABLE.
F. THE COMPENSATION MUST NOT BE PROHIBITED BY THE
LAW

ARTICLE 1280
RIGHT OF GUARANTOR TO SET UP COMPENSATION – THE
GUARANTOR IN CASE THE PAYMENT OF DEBT IS DEMANDED
FROM HIM, MAY SET UP COMPENSATION, NOT ONLY FOR
WHAT SUCH CREDITOR OWES HIM, BUT ALSO FOR WHAT SUCH
CREDITOR OWES THE PRINCIPAL DEBTOR.
EXAMPLE, A MAY UTANG NA 10,000 KAY B. SI B MAY UTANG
NA 10,000 KAY A AND IT IS GUARANTEED BY Z.
NANGONGOLEKTA NA SI A KAY B NG 10,000 AND SABI NI Z
IKAW AY MAY UTANG KA RIN SAKIN NA 10,000. LET’S HAVE
COMPENSATION, SO Z INVOKED COMPENSATION TO B.

ARTICLE 1281
ARTICLE 1282
VOLUNTARY COMPENSATION – THE PARTIES MAY AGREE
UPON COMPENSATION EVEN NOT ALL THE REQUISITES UNDER
ARTICLE 1279 ARE PRESENT.
ARTICLE 1283
JUDICIAL COMPENSATION – COMMONLY TERMED AS
COUNTERCLAIM. HOWEVER, THIS MUST BE RAISED AND
PLEADED BY THE PARTY, UNLIKE COMPENSATION, THIS DOES
NOT TAKE EFFECT BY OPERATION OF LAW.
ARTICLE 1284
RULES IN CASE OF RESCISIBLE OR VOIDABLE DEBTS – THESE
ARE CONSIDERED AS EXCEPTION TO THE GENERAL RULE OF
DEMANDABILITY IN ORDER THAT COMPENSATION SHALL TAKE
PLACE. RESCISSIBLE OR VOIDABLE OBLIGATIONS ARE
CONSIDERED DEMANDABLE WHILE THE VICES WHICH THEY ARE
TAINTED ARE NOT YET JUDICIALLY DECLARED.
RESCISSSIBLE DEBTS – THERE ARE DEFECTS IN THE OBLIGATION
WITH REGARDS TO CONSENT AND THE LAW ALLOWS
COMPENSATION HAPPEN PROVIDED THAT BEFORE THE
OBLIGATION IS DECLARED VOID, THERE WAS ALREADY
COMPENSATION MADE.
EXAMPLE, A IS INDEBTED TO B OF 10,000. B INDEBTED TO A
FOR 10,000. HOWEVER, IT WAS DISCOVERED THAT B AT THE
TIME HE CONTRACTED THE DEBT, HE IS ONLY BELOW 18 YEARS
OLD. SO THE OBLIGATION IS VOIDABLE. BUT, IF BEFORE THE
DECLARATION OF COURT THAT B’S OBLIGATION IS VOID
BECAUSE HE IS A MINOR, THERE IS ALREADY AN AGREEMENT
BETWEEN THEM THAT THERE WILL BE A COMPENSATION. IT IS
VALID UNLESS THERE IS NO DECLARATION FROM COURT THE
OBLIGATION OF B IS VOID.

ARTICLE 1285
EFFECT OF ASSIGNMENT OF RIGHTS/CREDIT –IFA CREDITOR
ASSIGNS HIS CREDIT TO THIRD PERSON, IT SHOULD BE
DISTINGUISH IF THE EFFECTS OF ASSIGNMENT WHEN
COMPENSATION HAS ALREADY TAKEN PLACE AND THE EFFECTS
WHEN COMPENSATION HAS NOT YET TAKEN PLACE. KUNG
ILILIPAT NIYA YUNG RIGHT, DAPAT ALAMIN KUNG YUNG
COMPENSATION BA IS HINDI PA NAGEEFECT OR OF NAG
EFFECT NA.
WHEN COMPESATION HAS TAKEN PLACE THE SUBSEQUENT
ASSIGNMENT OF RIGHTS BY A CREDITOR TO THIRD PERSON
CANNOT IN A WAY AFFECT THE DEBTOR.
EXAMPLE, A MAY UTANG KAY B 10,000. AND B MAY UTANG
KAY A NA 30,000. NOW, A WAS ABLE TO TRANSFER HIS RIGHT
TO Z. IF COMPENSATION TAKES EFFECT TO A AND B ALREADY, Z
CAN NO LONGER COLLECT THE UTANG OF B AMOUNTING TO
30,000. SINCE THERE IS A VALID COMPENSATION OF10,000,
ANG PWEDE NALANG MAKUHA NI Z IS YUNG 20,000 DAHIL DI
PA NAMN YUN EXTINGUISHED. AND HINDI NA RIN PWEDE
KOLEKTAHIN NG Z KAY A YUNG ISANG 10,000 BECAUSE
COMPENSATION ALREADY TAKES PLACE.

WHEN COMPENSATION HAS NOT TAKEN PLACE – THE EFFECTS

OF SUCH ASSIGNEMENT IF ALL THE REQUISITES ARE PRESENT
SHALL DEPEND WETHER IT WAS MADE WITH CONSENT AND
KNOWLEDGE OF THE DEBTOR OR NOT.
IF MAY CONSENT, THE CREDITOR WHO ASSIGNED HIS CREDIT
TO THE THIRD PERSON, SA KANINANG EXAMPLE SI Z, AY HINDI
PWEDENG MAG SET UP NG COMPENSATION. SI B HINDI
PWEDENG SABIHIN NA THERE WAS ALREADY COMPENSATION
THAT TOOK PLACE. SO Z CAN COLLECT FROM B 30,000
PROVIDED MAY CONSENT NI B YUNG ASSIGNMENT NI A KAY Z.
EXAMPLE, A MAY UTANG KAY B 10,000. B MAY UTANG KAY
30,000 KAY A. A TRANSFERRED HIS RIGHT TO COLLECT TO Z,
WHAT WILL BE THE CONSEQUENCE OF THAT?
IF IT IS WITH THE CONSENT BY DEBTOR, B IS NOTIFIED NA
ITATRASNFER NI A YUNG RIGHT TO COLLECT TO Z. Z CAN
COLLECT THE ENTIRE OBLIGATION NOT ONLY THE 20,000 BUT
THE WHOLE.
WITH KNOWLEDGE - IF THE ASSIGNMENT WAS MADE
WITHOUT THE CONSENT OF DEBTOR, DEBTOR CAN SET UP
COMPENSATION PRIOR TO THE ASSIGNMENT BUT NOT OF
SUBSEQUENT ONES.
EXAMPLE, SI A MAY UTANG 10,000 KAY B. SI B MAY UTANG NA
30,000 KAY A. NOW, A ASSIGNS HIS RIGHT TO COLLECT TO Z,
THE COMPENSATION BETWEEN A AND B WILL TAKE EFFECT.
THE AMOUNT OF 10,000 WILL BE EXTINGUISHED SO THE NEW
TOTAL DEBT IS 20,000. SO Z CAN NOW ONLY COLLECT 20,000.
ANOTHER, IF B CONRACTED A DEBT TO A FOR 50,000 AND A
TRANSFERRED HIS RIGHT TO COLLECT TO Z. B NOW SHOULD
PAY THE ENTIRE 50,000 AND CAN NO LONGER INVOKE
COMPENSATION IF A ALSO HAS A DEBT ON HIM.
WITHOUT KNOWLEDGE OF DEBTOR,
KUNG WALANG ALAM, COMPENSATION SHALL TAKE EFFECT
AGAINST THE CREDITOR ONLY ON OBLIGATION WHICH ARE
DUE AND DEMANDABLE BEFORE THE NOTICE OF ASSIGNMENT.

ARTICLE 1286
ARTICLE1287
ARTICLE 1288
DEBTS WHICH CANNOT BE COMPENSATED
A. DEBTS ARISING FROM CONTRACTS OF DEPOSITUM –
EXAMPLE, SA ISANG HOTEL NAWALA YUNG BAGAHE MO, SO
HOTEL SAID LETS HAVE COMPENSATION YUNG MGA KINAIN
MO WAG MO NA BYARAN, THIS IS INVALID.
B. DEBTS ARISING FROM COMMODATUM – PINAHIRAM YUNG
ISANG BAGAY
C. CLAIMS FOR SUPPORT DUE BY GRATUITOUS TITLE – YUNG
PARENTS MO DI KA BINIBIGYAN NG ALLOWANCE SINCE
PINPAKAIN KANA NILA
D. OBLIGATIONS ARISING FROM CRIMINAL OFFENSES – NANG
RAPE KA AND THE COURT SAID YOU MUST OAY 50,000 AS
DAMAGES. PERO YUNG NIRAPE MO MAY UTANG PALA SAYO
NA 50K SO IT IS NOT VALID COMPENSATION
E. CERTAIN OBLIGATIONS IN FAVOR OF THE GOVERNMENT,
SUCH AS TAXES, FEES AND DUTIES – SA TAXES, DI PORKET MAY
UTANG SAYO YUNG GOVERNMENT EH HINDI KANA
MAGBABAYAD NG TAX MO.
THE PROHIBITIONS ARE BASED ON JUSTICE, TRUST AND
CONFIDENCE AND SELF PRESERVATION.

ARTICLE 1289 –
ARTICLE 1290 –
EFFECT OF COMPENSATION –TO EXTINGUISH BOTH DEBTS TO
THE EXTENT THAT THE AMOUNT OF ONE IS COVERED BY THE
AMOUNT OF THE DEBTOR. THE ACCESORY OBLIGATIONS ARE
ALSO EXTINGUISHED.
WHEN COMPENSATION TAKES EFFECT ?- WHEN ALL THE
REQUISITES PRESRIBED BY LAW ARE PRESENT EVEN IF THE
CREDITOR AND DEBTOR IS NOT AWARE. BUT THIS ONLY
APPLIES TO LEGAL COMPENSATION BECAUSE IN VOLUNTARY IT
IS BASED ON THE PERFECTED AGREEMENT AND IN JUDICIAL
COMPENSATION, TAKES EFFECT FROM THE MOMENT THE
JUDGEMENT BECOMES FINAL AND EXECUTORY.