CONTRIBUTOR: Cherie Lyn Moslares

CASE TITLE: Mondragon Personel Sales Inc vs Victoriano S. Sola, Jr.

DOCTRINE: COMPENSATION

QUESTION:
Petitioner Mondragon entered into a Contract of Service with respondent Sola whereby the latter
would provide service facilities for the former’s products in consideration of commission or
service fee. Prior to the execution of the said contract, respondents wife had an existing obligation
with petitioner. Said obligation was acknowledged and confirmed by the respondent, wherein he
made himself liable for his wife’s debt to be paid on installment. By virtue of which, petitioner
herein withheld the payment of the respondents’ service fee and apply it the the debt. Whether
legal compensation would apply in this case?

ANSWER:
Yes, legal compensation is applicable in this case.
The New Civil Code provides that compensation is a mode of extinguishing to the concurrent
amount the obligations of persons who in their own right and as principals are reciprocally debtors
and creditors of each other. Legal compensation takes place by operation of law when all the
requisites are present, as opposed to conventional compensation which takes place when the parties
agree to compensate their mutual obligations even in the absence of some requisites. Legal
compensation requires the concurrence of the following conditions:
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 consists 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 are due;
4. That they be liquidated and demandable; and
5. That over neither of them be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.