ARTICLE 1287 humanity and public policy forbid this consequence.

Support in arrears, however, can be compensated.

INSTANCES WHEN LEGAL COMPENSATION IS
NOT ALLOWED BY LAW NOTE: only the depositary or borrower (in
commodatum) cannot set up compensation. The depositor
1. Where one of the debts arises from a depositum – a
can set up his deposit against the depositary, and the
deposit is constituted from the moment a person
lender can set up his loan against a credit of the borrower.
receives a thing belonging to another with the
This is in reality in a case of facultative compensation.
obligation of safely keeping it and of returning the
same.
Article 1287 uses the word depositum instead of ARTICLE 1288
“deposit”which is used for an ordinary bank deposit. A
ANOTHER INSTANCE WHEN LEGAL
bank deposit is not a depositum as defined here. It is
COMPENSATION IS NOT ALLOWED
really a loan which creates the relationship of debtor and
creditor. A bank’s failure to honor a deposit of money is 4. Where one of the debts consists in civil liability
failure to pay its obligation as debtor and not a breach of arising from a penal offense – compensation would
trust arising from a depositary’s failure to return the be improper and inadvisable because the satisfaction
thing deposited. of such obligation is imperative.
As a general rule, a bank has a right of set-off of Although no qualification is made in this article,
the deposits in its hands for the payment of any the person who has the civil liability arising from the
indebtedness to it on the part of a depositor. Similarly, a crime is the only party who cannot set up the
depositor has every right to set off his money deposit compensation; but the offended party entitled to
with a bank against the loans he had obtained from said indemnity can set up his claim in compensation of his
bank. debt. This is another case of facultative compensation.
2. Where one of the debts arises from a commadatum –
Commodatum is a gratuitous contract whereby one of
the parties delivers to another something not ARTICLE 1289
consumable so that the latter may use the same for a RULES ON APPLICATION OF PAYMENT APPLY TO
certain time and return it. ORDER OF COMPENSATION
Thus, the prohibition of compensation when one Compensation is similar to payment. If a debtor
of the debts arises from a depositum or commodatum is has various debts which are susceptible of compensation,
based on justice. A deposit is made or a commodatum is he must inform the creditor which of them shall be the
given on the basis of confidence in the depositary or the object of compensation. In case he fails to do so, then the
borrower. It is therefore a matter of morality that the compensation shall be applied to the most onerous
depositary or the borrower should in fact perform his obligation.
obligation; otherwise, the trust or confidence of the
depositor or lender would be violated.
3. Where one of the debts arises from a claim for support ARTICLE 1290
due by gratuitous title – support comprises everything
CONSENT OF PARTIES NOT REQUIRED IN LEGAL
that is indispensable for sustenance, dwelling,
COMPENSATION
clothing, medical attendance, education and
transportation, in keeping with the financial capacity 1. Compensation takes place automatically by mere
of the family (art.194, family code) operation of law – from the moment all the requisites
mentioned in article 1278 and 1279 co-exist,
With respect to future support, to allow its
compensation takes place automatically even in the
extinguishment by compensation would defeat its
absence of agreement between the parties, and
exemption from attachment and execution, and may
extinguished reciprocally both debts to the amount of
expose the recipient to misery and starvation. Common
their respective sums. It takes place by operation of
1
 law from the day all the necessary requisites concur, 1. When there is renunciation of the effects of
without need of consent on the part of the parties, and compensation by a party
even without knowledge. 2. When the law prohibits its compensation, such as
in the cases provided in articles 1287 and 1288
Its effects arises on the very day on which all
requisites concur, so that when it is used as defense or
when a judgment declares it to exist, it RETROACTS
to the date when its requisites are fulfilled.
2. Full capacity of parties not required – as it takes place
by operation of law and without any act of the parties,
it is not required that the parties have full legal
capacity to give or to receive.

Voluntary or conventional compensation takes place

upon the agreement of the parties.
Facultative compensation takes place when the
creditor declares his option to set it up.
Judicial compensation takes place upon final
judgment.

EFFECTS OF COMPENSATION:
1. Both debts are extinguished to the concurrent amount
2. Interest stop accruing on the extinguished obligation
or the part extinguished
3. The period of prescription stops with respect to the
obligation or part extinguished
4. All accessory obligations of the principal obligation
which has been extinguished are also extinguished.

Although compensation takes place by operation of

law, it must be alleged and proved by the debtor who
claims its benefits. Once proved, however, its effects
retroacts to the moment when the requisites provided by
law concurred.
Compensation may be renounced, either at the time
an obligation is contracted or afterwards. Compensation
rests upon a potestative right, and a unilateral declaration
of the debtor would be sufficient renunciation.
Compensation can be renounced expressly or
impliedly.
Even when all the requisites for a compensation
concur, the compensation may not take place in the
following cases:
2