Which statement is an essential requisite of compensation?

Which statement is an essential requisite of compensation?

• A. The two debts are liquidated
• B. The two debts are due and demandable
• C. No retention or controversy by a third person
• D. All of the above

Answer: (D)

Compensation happens when two persons owe each other and can be extinguished by offsetting the two amounts. For this to occur, several conditions must be present at the same time. The debts must be liquidated, meaning the amounts are certain and fixed. They must also be due and demandable, so each party can demand payment now. Finally, there must be no retention or controversy by a third person—the offset can proceed only if no third party has a right to withhold or dispute the obligation. When all these conditions are met, compensation operates to extinguish the mutual debts to the extent of the offset, with any excess remaining as a new balance. Since all three requirements are necessary, the correct view is that all of them are essential.

Compensation happens when two persons owe each other and can be extinguished by offsetting the two amounts. For this to occur, several conditions must be present at the same time. The debts must be liquidated, meaning the amounts are certain and fixed. They must also be due and demandable, so each party can demand payment now. Finally, there must be no retention or controversy by a third person—the offset can proceed only if no third party has a right to withhold or dispute the obligation.

When all these conditions are met, compensation operates to extinguish the mutual debts to the extent of the offset, with any excess remaining as a new balance. Since all three requirements are necessary, the correct view is that all of them are essential.