OBLIGATIONS &

CONTRACTS
COMPENSATION
___

Notes1

W/N there was compensation Reason

or set-off

1. Gan Tion v. CA Yes Attorney’s fees are subject to

legal compensation since the
litigant is the subject
creditor.

2. PNB v. Ong Acero No Compensation shall take

place when two persons are
principal creditors and
debtors of each other. PNB
has not proven by competent
evidence that it is a creditor
of Isabela.

3. Francia v. IAC No Government and taxpayer

'are not mutually creditors
and debtors of each other'
and a "claim for taxes is not
such a debt, demand,
contract or judgment as is
allowed to be set-off."

4. Mondragon v. Sola Yes Debts are subject to legal

compensation, provided that
it is between principal
debtors and creditors. This
includes co-debtors (but only

1
Source: Buhain-ObliCon-Digests, A2024 ObliCon MCG Digests Extinguishment of Obligations, and Claudia’ s
OBLICON Reviewer for Balane.
 the amount they owe).

5. Republic v. Delos Yes Proof of the liquidation of a

Angeles claim, in order that there be
compensation of debts, is
proper if such claim is
disputed. But, if the claim is
undisputed, as in the case at
the bar, the statement is
sufficient and no other proof
may be required.

6. Solinap v. Del Rosario No Compensation can take place

only if both obligations are
liquidated. Compensation
cannot take place where
one’s claim against the other
is still subject to court
litigation. In this case,
Solinap’s claim against
respondent Luteros is still
pending before the court.

7. Sycip v. CA No Compensation cannot take

place because Lapuz is only
an agent of Smith. Moreover,
Lapuz did not consent to the
off-setting of his obligation
with petitioner Sycip’s
obligation to pay for the 500
shares.

8. Cia. Maritima v. CA Yes (not legal, but judicial
compensation)
For compensation to take
place, the debts must be
liquidated. In this case, the
amount expended for repairs
and improvements had yet to
be determined. Moreover,
rentals for the use of the
vessel by PO were neither due
nor demandable at the time
of dispossession.

Although compensation by
operation of law (legal
compensation) did not take
place, the rentals payable by
Pan-Oriental should still be
deducted from the sum of
 useful expenses plus legal
interest due. This is an
example of judicial
compensation.

9. International No Compensation is not proper

Corporate Bank v. IAC
where the claim of the person
asserting the set-off against
the other is not clear or
liquidated; it cannot be
extended to unliquidated,
disputed claims arising from
breach of contract.

10. Ong v. CA No Petitioner Fermin is not a

creditor of Mariano. And
even if he were, the
obligation he alleges Mariano
has towards him is not a sum
of money nor is it of the same
kind and quality as Fermin’s
obligation towards Mariano.
Fermin’s debt can also not be
offset under Art. 1283
because Fermin was unable
to prove that he had a right
to any damages from
Mariano.

11. Pioneer Insurance v. Yes First, all the requisites in Art.

CA 1279 were present. Second,
legal compensation takes
place once all the requisites
are present, even if not
known to the parties. In this
case, the respondents cannot
refuse set-off since they
defaulted on the agreement
to make staggered payments.
Furthermore, sureties can
demand indemnity from the
principal when the latter
defaults, even if they haven’t
paid the creditor yet.

12. Silahis Marketing v. No There was no proof that

IAC Silahis and De Leon were
proven to be principal
debtors or creditors of one
 another. While Silahis owed
P22,000 to De Leon, there
was no showing that De Leon
was required to give it a 20%
commission. In other words,
whether the respondent is
liable to pay the petitioner a
20% margin or commission
on the subject sale to Dole
Philippines, Inc. is vigorously
disputed. This circumstance
prevents legal compensation
from taking place.

13. Sesbreno v. CA N/A Taena ewan q ba

14. Mindanao Portland Yes MPCC and Pacweld, were

Cement v. CA creditors and debtors of each
other, their debts to each
other consisting in final and
executory judgments of the
CFI in 2 separate cases,
ordering the payment to each
other of the sum of P10,000
by way of attorney’s fees. The
two (2) obligations,
therefore, respectively offset
each other, compensation
having taken effect by
operation of law and
extinguished both debts to
the concurrent amount of
P10,000 even though the
creditors and debtors are not
aware of the compensation.

15. EGV Realty v. CA No What the respondent

Unisphere has against
petitioners is just a claim, not
a debt. Hence, it is not
enforceable in court.
Moreover, there is a lack of
evidence to show that
petitioners E.G.V. Realty and
respondent Unisphere are
mutually debtors and
creditors to each other.

16. PNB Madecor v. Uy No There could not be any

 compensation because PNB
MADECOR’s supposed debt
to PNEI is the subject of
attachment proceedings
initiated by a third party,
herein respondent Gerardo
Uy. This is a controversy that
would prevent legal
compensation from taking
place. Furthermore, the debts
weren’t due and demandable
since PNB’s obligation to
PNEI was payable on
demand, and PNEI didn’t
make any demand, thus the
obligation wasn’t due.

17. Trinidad v. Acapulco Yes Respondent sold the car to

the petitioner on May 4 for
500k while she filed her
complaint about the
nullification of the sale on
May 6. As legal compensation
takes place and retroacts to
the date when its requisites
are fulfilled, legal
compensation has already
taken place at the time of the
sale. Consequently, by
operation of law, the 500k
that the petitioner owed the
respondent is offset against
the 566k owed by the
respondent to the petitioner.

18. Commercial Bank & N/A (The case focused on art. Banks have the option (not
Trust Co. v. BPI 1287 and not the requisites of duty) to set off liabilities.
compensation) They can’t be compelled to
exercise that option because
it’s only an alternative
method of enforcing their
claim.

19. Perez v. CA No There can be no legal

compensation because the
two bills were not due and
demandable. In
this case, the two bills were
assigned to Mever only after

20. CKH Industrial and No
Development v. CA
21. United Planters Sugar 2007 Resolution: No
Milling v. CA
2009 Resolution: Yes
(conventional compensation)
2010 Resolution: Yes
(conventional compensation)
the roll-overs. Because of
these, no legal compensation
could have taken place before
October 4 and 11 since these
were when one set of debts
was due. The other set of
debts was due on August 5,
but Art. 1279 requires that
both debts be due and
demandable when legally
compensated.
Compensation cannot be
applied in this case because
CKH and Century-Well, the
principal contracting parties,
are not mutually bound as
creditors and debtors in their
own name. The promissory
notes of Cheng do not reveal
his indebtedness to
Century-Well but to his sons
Kie and Choi who are merely
shareholders.
2007 Resolution: Court did
not allow set-off done by PNB
since Article 1279
prohibits compensation
between parties not principal
creditors and debtors of
each other. PNB set off
UPSUMCO funds not for itself
but as APT's collecting agent.
PNB is a debtor as against
United Planters since a bank
holds the money of their
account holders. Therefore,
the mutual creditor-debtor
relationship exists between
them but not between APT
and United Planters.
2009 & 2010 Resolution:
The court allowed set-off not
under legal compensation
but under conventional
compensation which takes
place when the parties agree
 to compensate their mutual
obligations even in the
absence of some requisites.

22. In Re: Uy Tong v. Yes Compensation applies but is

Silva limited to the dates before Uy
Tong became insolvent. One
of the requisites of Art. 1279
is that none of the debts
should be subject to
retention/controversy.
Insolvency is considered to
fall under the
retention/controversy of a
debt. Hence, legal
compensation may only
occur in the period before Uy
Tong became insolvent. As
such, compensation may only
take place for the debts due
February 28, 1955-May 25,
1955 (since Uy Tong became
insolvent on May 26, 1955).

23. Soriano v. People Yes Petitioner Soriano and

Alagao are debtors and
creditors of each other. Both
debts consist of a sum of
money. The cash advances for
the fertilizer is payable in
money. Both debts are due.
Both debts are liquidated and
demandable. There are no
third-party claims.

However, 1⁄4 of the harvest of

Alagao cannot be deducted
because it is not a sum of
money. They are in the form
of harvests. Also, it has not
yet been liquidated.

24. Montemayor v. Yes What Millora owes to

Millora Montemayor is paid back to
Millora in the form of
Attorneys Fees which was
equivalent to what
Montemayor is collecting.
Debt is liquidated even if

25. First United Yes
Constructors Corp. v.
Bayanihan
Automotive Corp.
based on counterclaims,
though not expressly stated
in the court decision or final
judgment. It is enough that
its exact amount is known.
This case has all requisites
present, and the only subject,
in this case, is determining
whether the said debts are
liquidated and demandable.
Since the RTC itself
determined the P71,000 cost
for repairs in one of the
letters, the 4th requisite of
Art. 1279 is present in this
case. Thus, all requisites for
legal compensation are
present.