Louisiana Civil Law Obligations
Professor Trahan
Retrojet (comme fait)
for
Section 5, Chapter 6, Title III, Book III of the Civil Code
entitled
"Compensation"
avec commentaire
Section 5.
Compensation
Introductory Comment to Section 5
Compensation is a juridical operation
whereby, when each of two persons is as to the other obligor and obligee (that
is, each is indebted personally to the other), their reciprocal obligations are
extinguished to the extent of the lesser obligation.
§ 1. Varieties of
compensation
Introductory Comment to § 1
There are three types of compensation: legal
(by operation of law), conventional (by effect of contract), and judicial (by
order of a court).
Art. 1893. Legal compensation: prerequisites
Legal compensation takes place when (i) two persons owe debts to each other
(ii) whose objects are identical and (iii) that are (a) liquidated and (b)
exigible.
The objects of two obligations are identical if and only if both obligations
are for the giving and delivery of things that, as between themselves, are (i)
fungible and (ii) identical in kind.
An obligation is liquidated if and only if (i) it is certain and (ii) its
amount is determined.
An obligation is exigible if and only if (i) it is a civil obligation and
(ii) it is not, at the moment at which the qualification is to be made, subject
to any suspensive temporal modalities. An obligation is not inexigible merely
because the obligor has been granted a delay of grace within which to perform.
Comments
(a) The first paragraph of this article
reproduces the substance of the first paragraph of CC art. 1893 (rev. 1984). It
would not change the law.
(b) The second and third paragraphs and the
first sentence of the fourth paragraph of this article are new. They would not,
however, change the law. They merely make explicit rules that were implicit in
CC art. 1893 (rev. 1984) and that have been recognized by Louisiana
jurisprudence and Louisiana civil law doctrine and, to some extent, French
civil law doctrine.
(c) The second sentence of the fourth
paragraph of this article reproduces the substance of the third paragraph of CC
art. 1893 (rev. 1983). It would not change the law.
(d) Fungible things are those that conform to
some generic description and that, as between themselves and from the
standpoint of the persons who are concerned with them, are freely
interchangeable. Examples include money, agricultural commodities, and minerals.
(e) An obligation can be liquidated by
stipulation of the parties, judgment of the court, or a combination of the two.
(f) Once the obligation is liquidated, it
becomes susceptible of legal compensation. If legal compensation then takes
place, it is deemed to occur as of the moment at which the obligation became
liquidated, not at the moment at which the obligation was first created.
(g) An obligation is "certain" if
and only if and only as of the moment at which it is determined that the
obligation in fact exists.
(h) An obligation can be liquidated in part
and unliquidated in part. That is true if (i) the obligation is certain and
(ii) the parties thereto, though in disagreement as to the full value of the
obligation, agree that the obligation is worth "at least" this or
that specified amount. In such a case, the obligation is liquidated up to that
amount and unliquidated beyond that amount.
(i) A natural obligation is not susceptible
of legal compensation. The same is true of an obligation that is subject to a
suspensive term or a suspensive condition. The reason, in all three cases, is
the same: the obligation is not exigible.
A civil obligation that is not subject to any
suspensive temporal modalities but is subject to a resolutory term or a
resolutory condition is susceptible of legal compensation. Unlike suspensive
temporal modalities, resolutory temporal modalities do not preclude
exigibility.
Art. 1893.1. Legal compensation: different sources
Legal compensation takes place regardless of the sources of the obligations.
Comments
(a) This article reproduces the first
paragraph of CC art. 1894 (rev. 1984) without modification. It would not change
the law.
(b) By virtue of this article, there is no
obstacle to the legal compensation of, for example, a delictual obligation and
a conventional obligation.
Art. 1893.2. Legal compensation: different places of performance
Legal compensation takes place even though the obligations are not to be
performed at the same place, but allowance must be made in that case for the
expenses of remittance.
Comment
This article reproduces CC art. 1895 (rev.
1984) without modification. It would not change the law.
Art. 1894. Legal compensation: impediments
Legal compensation does not take place if (i) one of the obligations is (a)
for the return of a thing of which the owner was unjustly dispossessed or (b)
for the return of a thing given in deposit or in loan for use (commodatum)
or (ii) the object of one of the obligations is exempt from seizure.
Comments
(a) This article reproduces the second
paragraph of CC art. 1894 (rev. 1984) with only minor stylistic variations. It
would not change the law.
(b) The rules set forth in this article are
suppletive. The parties to an obligation that falls within the scope of this
article may, therefore, agree that it shall be compensated. But in that case,
of course, the compensation would be conventional rather than legal.
Art. 1895. Legal compensation: renunciation
Legal compensation may be renounced, except when the renunciation would
prejudice rights previously acquired by third parties.
Comments
(a) The first clause of this article is new. It
would not, however, change the law. It merely renders explicit a rule that was
implicit in CC art. 1899 (rev. 1984) and that was recognized in Louisiana civil
law doctrine.
(b) The second clause of this article
reproduces part of CC art. 1899 (rev. 1984), namely, the part of it that
restricts the right to renounce legal compensation. It would not change the
law.
(c) A right is "previously
acquired," for purposes of this article, if it was acquired before the
time at which the compensation that is the object of the supposed renunciation
took place.
Art. 1896. Conventional compensation
Compensation of obligations may take place by agreement of the parties even
though the requirements for legal compensation are not met.
Comment
This article reproduces CC art. 1901 (rev.
1984) with only one minor stylistic variation. It would not change the law.
Art. 1897. Judicial compensation
If an obligation is insusceptible of legal compensation only because it is
unliquidated and if the obligation is nevertheless susceptible of prompt and
easy liquidation at least in part, the court can order compensation as to that
part of the obligation.
Comment
(a) This article reproduces the substance of
CC art. 1902 (rev. 1984). It would not change the law.
(b) The court can exercise the extraordinary
power accorded it by this article if and only if, as the text of the article
now makes clear, the sole obstacle to legal compensation is that the
obligation is unliquidated. If there is, in addition to or in lieu of that
obstacle, some other obstacle, for example, the obligation in question and the
obligation against which it is to be compensated have different objects or the
obligation in question is inexigible or is for the return of a deposited thing,
then the court cannot order compensation.
§ 2. Effects of
compensation
Introductory Comment to § 2
The effects of compensation, without
exception, can be induced from its very function and mechanism. The function is
to enable the parties to avoid having to receive and then return the same
performance. The mechanism is to permit each of the parties (i) to act as if
both performances have in fact been rendered and (ii) to treat the performance
that he owed as if it had been rendered back to him. It follows, then, that
compensation should have the same effects as an actual performance.
Art. 1898. Compensation: effects: in general
When compensation takes place, both obligations are extinguished to the
extent of the lesser obligation.
Comment
This article reproduces the substance of the
second paragraph CC art. 1893 (rev. 1984). It would not change the law.
Art. 1899. Compensation: effects: imputation of payment
If an obligor owes more than one obligation that is subject to compensation,
the rules of imputation of payment must be applied.
Comment
This article reproduces CC art. 1896 (rev.
1984) with only one minor stylistic variation. It would not change the law.
Art. 1900. Compensation: effects: principal & accessory
Compensation between obligee and principal obligor extinguishes the
obligation of a surety.
Compensation between obligee and surety effects a legal subrogation of the
surety to the rights of the obligee against the principal obligor.
Comments
(a) The first paragraph of this article
reproduces the first paragraph of CC art. 1897 (rev. 1984) without change. It
would not change the law.
(b) The second paragraph of this article is
new. It does not, however, change the law. To the contrary, it merely reflects
more accurately and in a less misleading fashion the rules that the second
paragraph of CC art. 1897 (rev. 1984) was designed to express.
(c) According to the second paragraph of CC
art. 1897 (rev. 1984), "[c]ompensation between obligee and surety does not
extinguish the obligation of the principal obligor." If the term
"extinguish" as used in this proposition is taken in an absolute
sense, the proposition is accurate: the obligation of the principal obligor
does subsist as to some parties and for some purposes. But if the term
"extinguish" as used in this proposition is taken in a relative
sense, the proposition becomes problematic. To be sure, the proposition is
right from the standpoint of the principal obligor and the surety, but that's
only because, when compensation between obligee and surety takes place, the
surety becomes legally subrogated to the obligee's rights against the principal
obligor, just as he (the surety) would have been had he (the surety) rendered
an actual performance. See CC art. 1839(3) (performance of an
obligation owed "for others"). From the standpoint of the obligee,
however, the proposition is down right wrong, for compensation between obligee
and surety extinguishes the principal obligation as to the obligee,
just as would an actual performance by the surety. See 1 Saśl
Litvinoff, The Law of Obligations § 19.19, at 658, in 5 Louisiana
Civil Law Treatise (1992).
Art. 1901. Compensation: effects: passive solidarity
Compensation between the obligee and one solidary obligor extinguishes the
solidary obligation of that obligor and his co-obligors only to the extent of
the obligee's obligation to that obligor. As to any part of the solidary
obligation that thereafter remains, the obligors, including the one as to whom
compensation takes place, remain solidary.
The compensation provided for in this Article does not operate in favor of a
liability insurer.
Comments
(a) The first paragraph of this article is
new. It does not, however, change the law. To the contrary, it merely reflects
more accurately and in a less misleading fashion the rules that the first
paragraph of CC art. 1898 (rev. 1984) was designed to express.
(b) According to the first paragraph of CC
art. 1898 (rev. 1984), "[c]ompensation between the obligee and one
solidary obligor extinguishes the obligation of the other solidary obligors
only for the portion of that obligor." The term "portion" as
used in connection with a solidary obligor nearly always refers to that
obligor's "virile share" of the obligation, which is a fixed
fractional or percentage share of the total debt. But if one were to attribute
that meaning to the term as used in CC art. 1898 (rev. 1984), then the article
would fail to express the rule that it was intended to express. Under that
article, compensation between the obligee and a solidary obligor was supposed
to extinguish the solidary obligation dollar-for-dollar up to the value of the
obligation that the obligee owed the solidary obligor, just as would have
happened had the solidary obligor rendered performance to the obligee in that
amount. To square the text of the article with this rule, Louisiana civil law
doctrine has been forced to reject identifying "portion" as used in
the article with "virile share" as used in the articles on passive
solidarity and, further, to adopt a definition of "portion" as used
in the article that can only be described as tortured. See Litvinoff, supra,
§ 19.20, at 659 ("In that context ["[c]ompensation between the
obligee and one solidary obligor"], the precise meaning of the portion
of that obligor must be properly understood. . . . In other words, compensation
between the obligee and one solidary obligor extinguishes the solidary
obligation not for the amount of that obligor's virile portion, but only for
the amount, and to the extent, of the reciprocal debts compensated between the
obligee and that obligor.")
(c) The second paragraph of this article
reproduces the third paragraph of CC art. 1898 (rev. 1984) without change. It
would not change the law.
Art. 1901.1. Compensation: effects: active solidarity
Compensation between one solidary obligee and the obligor extinguishes the
obligation of that obligee and his co-obligees only to the extent of that
obligee's obligation to the obligor. As to any part of the solidary obligation
that thereafter remains, the obligees, including the one as to whom
compensation takes place, remain solidary.
Comments
(a) This article is new. It does not,
however, change the law. To the contrary, it merely reflects more accurately
and in a less misleading fashion the rules that the second paragraph of CC art.
1898 (rev. 1984) was designed to express.
(b) According to the second paragraph of CC
art. 1898 (rev. 1984), "[c]ompensation between the one solidary obligee
and the obligor extinguishes the obligation only for the portion of that
obligee." The term "portion" as used in connection with a
solidary oblige nearly always refers to that obligee's "virile share"
of the obligation, which is a fixed fractional or percentage share of the total
debt. But if one were to attribute that meaning to the term as used in CC art.
1898 (rev. 1984), then the article would fail to express the rule that it was
intended to express. Under that article, compensation between the obligor and a
solidary obligee was supposed to extinguish the solidary obligation
dollar-for-dollar up to the value of the obligation that the solidary obligee
owed the obligor, just as would have happened had the obligor rendered
performance to that solidary obligee in that amount. To square the text of the
article with this rule, Louisiana civil law doctrine has been forced to reject
identifying "portion" as used in the article with "virile
share" as used in the articles on active solidarity and, further, to adopt
a definition of "portion" as used in the article that can only be
described as tortured. See Litvinoff, supra, § 19.20, at 660
("Also in that context ["compensation between one solidary obligee
and the obligor"], the precise meaning of the portion of that
obligee must be properly understood in the manner already explained for the portion
of a solidary obligor.").
Art. 1902. Compensation: effects: rights acquired by third parties
Compensation cannot take place to the prejudice of rights previously
acquired by third parties.
Comments
(a) This article reproduces part of CC art.
1899 (rev. 1984), namely, the part of it that precludes compensation where it
would prejudice third-party rights. The article would not change the law.
(b) A right is "previously
acquired," for purposes of this article, if it is acquired before the time
at which compensation would otherwise have taken place.
Art. 1902.1. Compensation: effects: assignment by obligee
An obligor who has consented to an assignment of the credit by the obligee
to a third party may not claim against the latter any compensation that he
otherwise could have claimed against the former.
An obligor who has been given notice of an assignment to which he did not
consent may not claim compensation against the assignee for an obligation of
the assignor that arises after receipt of that notice.
Comments
This article reproduces CC art. 1900 (rev. 1984) with only minor stylistic variations. It would not change the law.