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Compensation represents one of the ways of termination of obligations regulated by the provisions of the Law on Obligations.

The debtor can offset the claim he has against the creditor with what the creditor claims from him, if both claims are for money or other replaceable things of the same kind and quality and if both are due.

Therefore, in order for the declaration of compensation to produce the desired legal effect, it is necessary to fulfill both cumulative conditions stipulated by the law, namely:

1) That both claims are based on money or other replaceable things of the same kind;
2) That both claims are due at the time when the compensation is made.

If one of the above-mentioned conditions is not met at the time of making the offsetting statement, the offsetting statement will not produce the desired legal effect.

Set-off does not occur as soon as the conditions for it are met, but it is necessary for one party to declare to the other that it is performing set-off. After the declaration, it is considered that the set-off occurred at the time when the conditions for it were met.

The debtor cannot offset what he owes the creditor against what the creditor owes his guarantor, but the guarantor can offset the debtor’s obligation to the creditor against the debtor’s claim from the creditor.

Whoever gave his thing as a pledge for someone else’s obligation, can demand from the creditor to return the pledged thing to him when the conditions for the termination of that obligation by set-off are met, as well as when the creditor fails to carry out the set-off due to his own fault.

A debt can be set off against a time-barred claim only if it was not yet time-barred at the time when the conditions for set-off were met. If the conditions for set-off have arisen because one of the claims is time-barred, the set-off does not occur if the debtor of the time-barred claim has objected to the statute of limitations.

The debtor of the assigned claim can set off against the receiver those of his claims that he could set off against the assignor before the notification of the assignment. He can also set off his claims from the assignor that he acquired before the assignment was notified, and whose deadline for fulfillment was not due at the time when he was notified of the assignment, but only if that deadline falls before the deadline for fulfilling the assigned claim or at the same time.

The debtor who declared to the receiver without reservation that he agrees to the assignment can no longer set off any of his claims from the assignor. If the assigned claim is entered in the public books, the debtor can set off the receiver only if his claim is registered with the assigned claim or if the receiver was notified during the assignment of the existence of that claim.

The Law on Obligations also foresees certain cases when set-off (compensation) is excluded, and the law explicitly states that it cannot end with set-off:

1) claim that cannot be seized;
2) claim of things or the value of things that were given to the debtor for safekeeping, or on a container, or that the debtor took illegally, or kept them illegally;
3) claim arising from intentional damage;
4) claiming compensation for damage caused by damage to health or death;
5) a claim arising from a legal maintenance obligation.

Examples of giving a compensatory statement are numerous. Set-off can be given as a unilateral statement by which the debtor informs his creditor of the intention to set off due and collected claims. Offsetting can also be concluded in the form of an offsetting agreement. A set-off agreement can be concluded by two or more contractual parties (eg triple set-off), and in which agreement the parties will agree and agree that the mutual and due claims of the parties will be set off.

Set-off can also be given during the duration of the litigation, in which case one of the litigants can point out the so-called compensatory objection, and on which objection the court will make a special decision when deciding on the main matter.