Article 1279
ELI5— what this means for you
For a debt to be legally offset (compensated) against another debt, both parties must owe each other directly, both debts must be money (or identical goods), both must already be due, both must be fixed in amount and demandable, and neither can be tied up in a dispute with a third party.
Official text — RA 386
In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(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;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(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)
Source: lawphil.net (RA 386 as amended)
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