Article 1279.

In order that compensation may consequence of compensation carries with it

be proper, it is necessary: the accessory obligations such as guaranty.
(4) That they be liquidated and demandable; Examples:
(5) That over neither of them there be any (1) A owes B P500,000. C is the guarantor of A.
retention or controversy, commenced by third B owes A P100,000. When B sues A and A
persons and communicated in due time to the cannot pay, for how much will C be liable?
debtor. Ans: C will be liable for only P400,000, because
Requisites of Legal Compensation he can set up the P100,000 credit of A as the
4. The two debts are liquidated, basis for partial compensation.
Example:
A owes B P10,000. B owes A the share of the (2) A owes B P500,000. C is the guarantor of A.
latter in a business the amount of which is still B owes C P500,000. When B sues A for the
to be ascertained. P500,000, may A successfully put up the defense
Compensation will not take place as the debt of of compensation in that, after all, his creditor
B is not liquidated. If part of the debt of B has (B) owes C the same amount?
been liquidated, compensation takes place with Ans: There can be no compensation here
respect to that part without waiting for the because in the obligation which C guaranteed
liquidation of the rest. for A, C is not bound in his own right. Neither is
5. No retention or controversy has been A the creditor of B.
commenced by a third person.
Example:
A owes B P100,000, and B owes A P100,000, but
A’s credit of P100,000 has been garnished by C
who claims to be an unpaid creditor of A. B has
been duly notified of the controversy.
There can be NO compensation here. Any
possible compensation is in the meantime
suspended. If C wins his claim, there can be no
compensation; if he loses, the controversy is
resolved, and compensation can take place.
Article 1280. Notwithstanding the provisions
of the preceding article, the guarantor may set
up compensation as regards what the creditor
may owe the principal debtor.
Compensation benefits guarantor.
This article is an exception to the general rule
that only the principal debtor can set up against
his creditor what the latter owes him.
Although the guarantor is only subsidiarily, not
principally bound, he is given the right to set up
compensation. The reason is that the
extinguishment of the principal obligation as a