COMPENSATION. – Compensation is the extinction, whether total or partial, of two or more debts (and the corresponding credits) when one person is both creditor and debtor of another.
A distinction is made between legal compensation and judicial compensation: the former produces, by operation of law, the total or partial extinction of reciprocal credit and debt balances where certain requirements are met; the latter operates through the intervention of a judge, who, by imputing in payment what the creditor owes in turn to the debtor, in substance merely recognizes the existence of the requirements for compensation, whose cause always resides in the law. Compensation is also spoken of as voluntary when, outside the two cases mentioned above, the parties agree to compensate their obligations reciprocally.
The requirements necessary for compensation to take place, at least in legal and judicial compensation, are: a) the identity of the parties, who must be holders (even by universal or particular succession) of reciprocal obligations of a properly juridical nature, i.e., obligations ex iustitia, not ex caritate, gratitude, etc.; b) the liquidity of the credits, that is, their validity and the certainty of the amount owed; c) the exigibility of the credits, that is, the fact that the credits to be compensated are enforceable by action; d) the homogeneity of the objects on which compensation is to operate (the laws moreover generally require that the object of the credit be a quantity of fungible things).
The CIC implicitly contemplates judicial compensation in can. 1690, with regard to the reconventional action, which is defined as «actio quam reus coram eodem iudice in eodem iudicio instituit contra actorem, ad submovendam vel minuendam eius petitionem...».
A specific case of judicial compensation may be considered the compensation of judicial expenses (can. 1911).
According to the general principle that the expenses of the suit follow the losing party (can. 1910), the judge, in the case of partial victory for each of the parties to the suit, should in fact grant each party the benefit of expenses pro rata victoria. And by this means there would come about precisely that set-off of liquid, exigible and homogeneous credits on which legal compensation operates ipso iure: which amply justifies the judge’s ruling by which the expenses of the suit are declared compensated in whole or in part.
But compensation of judicial expenses is not limited to the case of partial defeat. If the litigants are relatives or in-laws, if the controversy was of doubtful solution and consequently the good faith of the losing party cannot be denied, or if, finally, there is a just and grave cause, e.g., the poverty of the losing party, the law (can. 1911) gives the judge, for obvious reasons of expediency and equity, the discretionary power to compensate the expenses totally or partially, leaving, that is, each of the litigating parties to bear the expenses it incurred during the course of the entire suit and those subsequent to II.
For compensation of injuries, see INJURY and SLANDER.