Article 1289 states that if a person has several debts susceptible to compensation, the rules on application of payments shall apply to determine the order of compensation. This means the rules for choosing which debt to pay first (e.g., most onerous, proportionate) are used for compensation as well.

The video introduces compensation as a mode of extinguishment of obligations, covered by Article 1278 to Article 1290. Compensation involves the extinguishment of debts between two persons who are reciprocally principal debtors and creditors to each other, to the concurrent amount of their debts, without actual money transfer. Compensation can be complete or partial, taking place by operation of law. An example illustrates partial and total compensation.

The speaker distinguishes compensation from confusion (merger), where a single person holds both debtor and creditor roles, and payment, which requires an act of parties, free disposal of the sum, and complete fulfillment. Compensation, in contrast, takes effect by operation of law, does not require capacity to give/receive, and allows for partial extinguishment.

Compensation is classified by its effect (total or partial) and its cause or origin (legal, conventional/voluntary, judicial, and facultative). Legal compensation occurs by operation of law, voluntary by agreement, judicial by court order, and facultative by the will of one party when requisites for legal compensation are not all present.

Article 1279 outlines the five requisites for legal compensation: both parties must be principal debtors and creditors of each other; both debts must consist of a sum of money or consumable things of the same kind and quality; both debts must be due; both debts must be liquidated and demandable; and there must be no retention or controversy commenced by third persons and communicated to the debtor. Each requisite is explained with examples.

Article 1280 allows a guarantor to set up compensation as regards what the creditor may owe the principal debtor, even though the guarantor is only subsidiarily liable. This benefits the guarantor by extinguishing the principal obligation, which in turn extinguishes the accessory obligation (guarantee).

Article 1281 states that compensation can be total if both obligations are of the same amount, or partial if they are of different amounts. This reiterates previous explanations on the extent of compensation.

Article 1282 discusses voluntary compensation, which allows parties to agree upon compensation for debts that are not yet due. This is an exception to the general rule for legal compensation, as it relies on the mutual consent and agreement of the parties, making the requisites of Article 1279 not strictly applicable.

Article 1283 addresses judicial compensation, or set-off. A party may set off a claim for damages against an obligation, provided the right to damages and their amount can be proven. This type of compensation takes place when declared by a final judgment of a court.

Article 1284 states that rescissible or voidable debts may be compensated against each other before they are judicially rescinded or avoided. These debts are valid until annulled, thus compensation is allowed. However, if annulment or rescission is later decreed, it acts retroactively as if no compensation occurred.

Article 1285 explains the impact of assignment on compensation, outlining three scenarios: (1) if the debtor consented to the assignment without reserving their right to compensation, they cannot set it up against the assignee; (2) if the debtor had knowledge but did not consent, they can set up compensation for debts prior to the assignment only; and (3) if the assignment was made without the debtor's knowledge, they can set up compensation for all credits prior to having knowledge of the assignment, even if they matured later.

Article 1286 states that compensation takes place by operation of law even if debts are payable at different places. However, there must be an indemnity for expenses of exchange or transportation to the place of payment, borne by the party claiming compensation.

Article 1287 specifies instances where compensation is not proper: when a debt arises from a depositum (contract of deposit for safekeeping) or from the obligations of a depositary or a bailee in commodatum (gratuitous loan for use). It also cannot be set up against a creditor who has a claim for support due by gratuitous title.

Article 1288 prohibits compensation if one of the debts consists of civil liability arising from a penal offense (crime). This is to prevent criminals from offsetting their civil liabilities with debts owed to them by their victims. However, the offended party (victim) can waive this prohibition and set up compensation.

Article 1290 concludes by reaffirming that when all requisites from Article 1279 are present, compensation takes effect by operation of law, extinguishing both debts to their concurrent amount, even if the parties are unaware. It defines 'concurrent amount' as the amount up to the smaller of the two debts, leaving any remaining balance of the larger debt to subsist.