Article 1279

March 25, 2016

In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to the
debtor. (1196)

Para ang kompensasyon ay nararapat, dpat ito ay :

Upang maging wasto ang compensation, kinakailangan na:

(1) Bawat isa sa mga may utang ay obligado principally, at na siya din ang
principal creditor nung isa;

(2) Kung ang parehong utang ay binubuo ng kabuuan ng pera, o ang

bagay na dapat ibigay ay inilaan upang gamitin, na pareho sila ng uri, at
pareho din sila ng kalidad kung ang nahuli ay nakasaad;

(3) Kung ang dalawang utang ay dapat nang bayaran;

(4) Na ito ay liquidated at hinihingi

 (5) Na wala sinuman sa mga ito mayroong anumang mga pagpapanatili o
kontrobersya, na nagsimula sa pamamagitan ng ikatlong tao at nakipag-
ugnayan sa angkop na panahon sa may utang. (1196)

Discussion:

Article 1270 enumerates the requirements or requisites for legal

compensation as follows:

1. “That each one of the obligors be bound principally, and that he be at

the same time a principal creditor of the other” – that parties be mutual
creditor and debtor of each other and their relatonship is a principal one,
that is, they are principal debtor and creditor of each other.
2. “That both debts consist in a sum of money, or the thing due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated”. – When the debts consist of a money, there is not
much of a problem when it comes to compensation to the concurrent
amount. It is a matter of mathematical computation.
3. “That the 2 debts are due” – Thelaw does not require that the parties
obligations be incurred at the same time, what the law requires only is that
the obligations be due and demandable at the same time.
4. “That they be liquidated and demandable” – A debt is considered
liquidated when its amount is clearly fixed. It is unliquidated when the
amount is not fixed because it is still subject to a dispute or to a certain
condition
5. “That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due to the debtor” – A
debt or a thing cannot be subject of compensation if the same had been the
subject of a garnishment of which the debtor was timely notified.  When a
credit or property had been properly garnished or attached, it is placed
under a custodia legis.  this means it cannot be disposed of without the
approval of the court. Consequently, compensation cannot operate
because a third party is already involved whose claim will be determined by
the court

Discussion:

Article 1270 enumerates the requirements or requisites for legal

compensation as follows:
1. “That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other”

That the parties must be mutual creditors and debtors of each other and
their relationship is a principal one, that is, they are principal debtor and
creditor of each other.

X owes Php 100,000.00 to Y

2. “That both debts consist in a sum of money, or the thing due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated”.

When the debts consist of a money, there is not much of a problem when it
comes to compensation to the concurrent amount. It is a matter of
mathematical computation. when the thing due is consumable which must
be understood as fungible, it can be susceptible to substitution.

X owes 100 sacks of rice to Y, and Y owes 50 sacks of rice to X. In this

example, there can be compensation because both the thing due is generic
and are susceptible of substitution.

X owes 100 sacks of milagrosa rice to Y and Y owes 100 sacks of brown
rice to X. In this example, there is no compensation because the thing due
is different in quality

3. “That the two debts are due”

The law does not require that the parties obligations be incurred at the
same time, what the law requires only is that the obligations be due and
demandable at the same time. A debt is due when the period of
performance has arrived.

When is an obligation not demandable?

1. when there is a period and it has nit yet arrived, including in the case
ewhen one party is in a state of suspension of payments
2. when there is a suspensive condition and its has not yet happened
3. when the obligation cannot be sued upon

4. “That they be liquidated and demandable”

A debt is considered liquidated when its amount is clearly fixed. It is

unliquidated when the amount is not fixed because it is still subject to a
dispute or to a certain condition.

A real state mortgage is needed to be auctioned in order to satisfy the

indebtedness of the debtor.

5. “That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due to the
debtor”

A debt or a thing cannot be subject of compensation if the same had been

the subject of a garnishment of which the debtor was timely notified.  When
a credit or property had been properly garnished or attached, it is placed
under a custodia legis.  This means it cannot be disposed of without the
approval of the court. Consequently, compensation cannot operate
because a third party is already involved whose claim will be determined by
the court

Case Illustration

Solinap vs Del Rosario

Escolin, J.

FACTS:

The spouses Tiburcio Lutero and Asuncion Magalona, owners of the

Hacienda Tambal, leased the said hacienda to petitioner Loreto Solinap for
10 years for the stipulated rental of P50,000.00 a year. It was further
agreed in the lease contract that P25,000.00 from the rental should be paid
by Solinap to the PNB to amortize the indebtedness of the spouses Lutero.
When Tiburcio Lutero died, his heirs instituted the testate estate
proceedings. On the basis of an order, respondents Juanito Lutero
[grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid
the PNB the sum of P25,000.00 as partial settlement of the deceased’s
obligations. Spouses Lutero filed a motion seeking reimbursement from the
petitioner. They argued that the said amount should have been paid by
petitioner to the PNB, as stipulated in the lease contract. Before the motion
could be resolved, petitioner a separate action against the spouses for
collection of P71,000.00 they borrowed from the petitioner. The spouses
answered and pleaded a counterclaim against petitioner for P125,000.00
representing unpaid rentals on Hacienda Tambal and that petitioners
purchased one-half of Hacienda Tambal. The respondent judge issued an
order granting the spouses’ motion for reimbursement from petitioner of the
sum of P25,000.00, plus interest. Petitioner filed a petition for certiorari
before this Court, assailing the above order. Acting on the petition, the
P25,000.00 to be paid by the petitioner to the private respondent Luteros
may well be taken up in the final liquidation of the account between
petitioner as lessee and the subject estate as lessor. Thereafter the
respondent Luteros filed with the respondent court a motion raising that the
amount payable to private respondents should be compensated against the
latter’s indebtedness to him amounting to P7 1,000.00. This motion was
denied by respondent judge on the ground that “the claim of Loreto Solinap
against spouses was yet to be liquidated and determined, such that the
requirement in Article 1279 of the New Civil Code that both debts are
liquidated for compensation to take place has not been established by the
oppositor Loreto Solinap. Petitioner filed a motion for reconsideration of this
order, but the same was denied. Hence, this petition.

 ISSUE:

whether or not the obligation of petitioner to private respondents may be

compensated or set-off against the amount sought to be recovered in an
action for a sum of money filed by the former against the latter

 HELD:

The petition is devoid of merit. In the case at bar, the petitioner’s claim
against the spouses was still pending determination by the court.
Petitioner’s claim in the case could not be categorized as liquidated credit
which may properly be set-off against his obligation. As this Court ruled in
Mialhe vs. Halili “compensation cannot take place where one’s claim
against the other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain and
liquidated.” The petition was dismissed.