SECTION 5.

COMPENSATION

ARTICLE 1278

Compensation shall take

place when two persons, in COMPENSATION MERGER
their own right, are creditors There are at least There is only one
and debtors of each other. two persons who person involved in
stand as principal whom the characters
creditor and of the creditor and
KINDS OF COMPENSATION debtor of each debtor are merged.
other.
1) BY ITS EFFECT OR EXTENT There are two There is only one
a) TOTAL - when both obligations obligation.
obligations are of the involved.
same amount and are
entirely extinguished
b) PARTIAL - when the two ARTICLE 1279
obligations are of different In order that compensation may be
amounts and a balance proper, it is necessary:
remains.
(1) That each one of the obligors be
bound principally, and that he be at
2) BY ITS CAUSE OR ORIGIN the same time a principal creditor
a) LEGAL - takes place by of the other;
operation of law when all (2) That both debts consist in a
the requisites are present sum of money, or if the things due
even without the are consumable, they be of the
knowledge of the parties same kind, and also of the same
b) CONVENTIONAL OR quality if the latter has been
VOLUNTARY - takes place stated;
by agreement of the
parties even in the (3) That the two debts be due;
absence of some (4) That they be liquidated and
requisites demandable;
c) JUDICIAL - takes place by
order from a court in (5) That over neither of them there
litigation. be any retention or controversy,
(1)That each one of the
d) FACULTATIVE - when it obligors be bound principally,
can be set up by only one and that he be at the same
party time a principal creditor of the
other;

COMPENSATI PAYMENT a) There must be a creditor-

ON debtor relationship
There can be Performance b) There must be two debts
partial must be and two credits
extinguishmen completed,
c) They must be generally
t of obligation.unless waived
by the creditor. bound as principals
Takes place by Involves delivery
operation of of action
law without Example:
simultaneous A owes B P 800.00.
delivery. B owes A P 800.00.
 In this example, both are real estate taxes from 1963 to
principal creditors and 1977, accumulating a tax
debtors of each other, there delinquency of P2,400.00.
are two debts and two credits
On December 5, 1977, the City
and they are generally bound
Treasurer of Pasay conducted a
as principals.
public auction due to the tax
(2)That both debts consist in a
delinquency, where Ho Fernandez
sum of money, or if the things
emerged as the highest bidder.
due are consumable, they be of
the same kind, and also of the Francia, who was in Iligan City at
same quality if the latter has the time, learned of the auction
been stated; and the issuance of a Final Bill of
Sale to Fernandez through a notice
There can be no compensation if
of a title entry petition by
one debt involves the payment of
Fernandez on March 3, 1979.
money and the other the delivery
of a particular thing. Francia then filed a complaint to
annul the auction sale, which was
Examples:
dismissed by the lower court on
1. A owes B 10 sacks of rice. April 23, 1981. The Intermediate
B owes A 10 sacks of corn. Appellate Court later affirmed this
decision, leading to Francia’s
petition for review to the Supreme
There is no compensation because
Court, raising concerns about
the things due are not of the same
the off-setting of his tax debt with
kind.
the government’s debt to him from
expropriation, notification issues
concerning the auction sale, and
2. A owes B 10 sacks of “wagwag”
the gross inadequacy of the auction
rice.
price.
B owes A 10 sacks of rice.
ISSUE:

There is no compensation because Whether Francia’s tax delinquency

of the lack of identity of the kind can be set off by the compensation
and quality of the rice due. received from the government for
expropriation.

CASE: Engracio Francia vs. RULING:

Intermediate Appellate Court
The Court found no legal basis for
and Ho Fernandez
Francia’s contention that the tax
(GR No. L-67649, June 28,
delinquency was extinguished by
1988)
legal compensation with the
government’s debt from
Facts:
expropriation. It reiterated
Engracio Francia (Francia) owned that taxes could not be the subject
a residential lot and two-story of set-off against claims that a
house in Pasay City, Metro Manila, taxpayer may have against the
covered by Transfer Certificate of government.
Title No. 4739 (37795).

On October 15, 1977, a portion of

(3)That the two debts be due
his property was expropriated by
the Republic of the Philippines A debt is due when its period of
for P4,116.00. Francia failed to pay performance has arrived.
 The loan obligation and amount are
still being disputed in a Court of
Example:
Appeals case.
A owes B P1,000 due today.
B owes A P1,000 due next month.
The Supreme Court said that there
can be no legal compensation as
Compensation cannot take place as there was no compliance with the
the debts are not due on the same fourth requisite (that they be
date. However, if A has not yet paid liquidated and demandable)
B on the date that the obligation of
B becomes due, there will be
compensation on said date. CASE: Silahis Marketing
Corporation vs. Intermediate
Appellate Court and Gregorio
De Leon, doing business in the
name and style of “Mark
CASE: PNB Madecor vs Uy
Industrial Sales”
(G.R. No. 129598, August 15,
(G.R. No. L-74027, December 7,
2001)
1989)

One of the debts was payable only

upon demand and there was no
demand made.
FACTS:
Gregorio de Leon (de Leon) doing
The Supreme Court ruled that there
business under the name and style
can no compensation because such
of Mark Industrial Sales sold and
debt is not yet due.
delivered to Silahis Marketing
Corporation various items of
merchandise covered by several
(4)That they be liquidated and
invoices in the aggregate amount
demandable
of P22,213.75 payable within thirty
days from date of the covering
A debt is considered liquidated
invoices.
when its amount is clearly fixed,
known or determinable. Silahis Marketing Corp
(Silahis) failed to pay despite
It is unliquidated when the amount repeated demands.
is not fixed because it is still
De Leon filed a complaint for the
subject to a dispute or to certain
collection of said accounts
condition.
including accrued interest in the
amount of P661.03 and attorney’s
It is not enough that the debts be
fees of P 5,000.00 plus costs of
liquidated, it is also essential that
litigation.
the same be demandable. A debt is
demandable if it is not yet barred Silahis admitted the allegations of
by prescription and it is not illegal the complaint insofar as the
or invalid. invoices were concerned but
presented as affirmative defenses:
CASE: Philippine Trust
1) a debit memo for P 22,200.00 as
Company v Floro Roxas, et.al.
unrealized profit for a supposed
(G.R. No. 171897, October 14,
commission that Silahis should
2015)
have received from de Leon for the
sale of sprockets in the amount of
P111,000.00 made directly to Dole the names of Mr. Looyuko and the
Philippines. private respondent.

2) Silahis’ claim for return and

Upon alleging default by Noah’s
cancellation of payment for
Ark, petitioner extrajudicially
defective goods.
foreclosed on the mortgage,
ISSUE: triggering subsequent legal
actions.
Whether the commissions are
regarded as a valid compensation.
Private respondent claimed that
RULING: demand was not made upon him,
in spite of the fact that he co-
The Court held that compensation
signed the promissory notes. He
takes place when two persons, in
also argues that only four of the
their own right, are creditors and
eight promissory notes secured by
debtors to each other and in
the mortgage had become due. A
accordance to Article 1279.
reading of the promissory notes
Petitioner admits the validity of its
discloses that as co-signor, private
outstanding accounts with private
respondent waived demand.
respondent in the amount of
P22,213.75 as contained in its
Further, Go argued that by
answer. But whether the private
withholding the lease payments Far
respondent is liable to pay the
East Bank and Trust Company
petitioner a commission on the
(FEBTC) owed Noah’s Ark for the
subject sale to Dole Philippines, Inc.
space FEBTC was leasing from
is vigorously disputed. This
Noah’s Ark and applying said
circumstance prevents legal
amounts to the outstanding
compensation from taking place.
obligation of Noah’s Ark, is merely
There was no written agreement
an acknowledgement of the legal
obligating De Leon to pay Silahis a
compensation that occurred by
commission for the sale to Dole.
operation of law between the
CASE: Bank of the Philippine parties.
Islands (Formerly Far East Bank
and Trust Company) vs. Court
of Appeals and Jimmy T. Go ISSUE:
(G.R. No. 142731, June 8, 2006)
Whether by operation of law,
FACTS: compensation took place against
Petitioner, granted a total of eight the loan of Noah’s Ark and lease of
(8) loans to Noah’s Ark FEBTC
Merchandising (Noah’s Ark).
RULING:
The loans were evidenced by
identical promissory notes signed YES. FEBTC and Noah’s Ark are
by Mr. Albert T. Looyuko (owner of both principal obligors and
Noah’s Ark), private respondent creditors of each other. Their debts
Jimmy T. Go, and one Wilson Go. to each other both consist in a sum
of money. As discussed above, the
All eight notes secured a real eight promissory notes of Noah’s
estate mortgage over a parcel of Ark are all due; and the lease
land covered by Transfer Certificate payments owed by FEBTC become
of Title No. 160277, registered in due each month. Noah’s Ark’s debt
is liquidated and demandable; and
FEBTC’s lease payments are
liquidated and are demandable ARTICLE 1280
every month as they fall due.
Lastly, there is no retention or Notwithstanding the
controversy commenced by third provisions of the preceding
persons over either of the debts article, the guarantor may set
up compensation as regards
(5) That over neither of them what the creditor may owe the
there be any retention or principal debtor.
Guarantor is a person who
controversy, commenced by
promises to pay the creditor in
third persons and
the event that the principal
communicated in due time to
debtor fails to pay the
the debtor.
indebtedness. But before the
creditor can go against a
Compensation will not take place guarantor, the creditor must first
where there is waiver. exhaust all possible ways to collect
the debt from the principal debtor
There is said to be a retention
unless the guarantor binds himself
when the credit of one of the
solidarily with the principal debtor.
parties is subject to the satisfaction
of the claims of a third person.
The liability of the guarantor is only
Due time is the period before legal subsidiary; it is accessory to the
compensation as supposed to take principal obligation of the debtor.
place, considering that legal
compensation operates so long as If the principal debtor has a credit
the requisites concur, even without against the creditor, which can be
any conscious intent on the part of compensated, it would mean the
the parties. extinguishment of the guaranteed
debt, either totally or partially. This
Example:
extinguishment benefits the
A owes B P50,000.00.
guarantor, for he can be held liable
B owes A P50,000.00.
only to the same extent as the
B also owes C P50,000.00.
debtor.

C causes the garnishment of the

Example:
credit of B against A and notifies A
B owes C P1,000.00, with D as
not to pay B P50,000.00, as C has
guarantor.
better right to the said amount.
If C also owes B P1,000.00, the
B may not owe C but the latter
obligation is extinguished,
claims that she, and not B is the
including the guaranty.
creditor of A.

However, If C’s debt to B is only

In this case, compensation cannot
P700.00, D, the guarantor, is still
take place between A and B in view
liable for the remaining P300.00.
of the controversy commenced by
C, the third person. In the
meantime, compensation is ARTICLE 1281
suspended.
Compensation may be total or
partial. When the two debts are
If C loses the case, compensation
of the same amount, there is a
shall be deemed to have taken
total compensation.
place as of the date the requisites
for legal compensation occurred.
Total Compensation arises when
the mutual debts of the parties to
Compensation can occur only when
each other are equal.
the debts are due and demandable.
However, parties may agree upon
Partial Compensation arises the compensation of debts which
when the debts are not equal, in are not yet due.
which case, the debts are
Example:
extinguished to the concurrent
amount. If A is indebted to Z in the amount
of P1,000.00 due on April 11, 1997
Example: If A owes Z P2,000.00,
and Z is indebted to A in the same
and Z owes A P500, compensation
amount but due on May 7, 1997,
can occur but only on a partial
there can be no compensation on
basis, Z’s indebtedness will be
April 11, 1997.
extinguished, but A’s indebtedness
will subsist but partially However, Z and A can agree that,
extinguished to the extent of even if May 7, 1997 has not yet
P500.00, reducing liability to the arrived, their mutual indebtedness
amount of P1,500.00 compensate each other so that
their respective obligations are
extinguished.
CASE: Mondragon Personal
Sales Inc. vs. Victoriano Sola In this case, the third requisite is
(G.R. No. 174882, January 21, absent, which is that debt must be
2013) due and demandable. Therefore, A
and Z may voluntarily agree to
The petitioner owed the compensate.
respondent P125,040.01 based on
a “Contract of Services” where the
ARTICLE 1283
latter provided the former with
bodega-facilities. On the
If one of the parties other
to a suit
hand,
over the respondenthasowed
an obligation a
petitioner
claim for damages againstof
the amount
P1,973.154.73
the other, the based
former on may a
“Franchise Distributorship
set it off by proving his right
Agreement”.
to said damages and the
The set-off in this article is a
The Supreme Court determined
judicial set-off.
that all the elements of legal
compensation, though partial, was Judicial compensation takes
present. The compensation is place when declared by a final
proper up to the concurrent judgment of a court in a suit. A
amount where petitioner owes party may set off his claim for
respondent P125,040.01 for service damages against his obligation to
fees, while respondent owes the other party by proving his right
petitioner P 1,973,154.73. to said damages and the amount
thereof.

Example:
ARTICLE 1282
D owes C P10,000.00. When C
The parties may agree upon demanded payment, D failed to
the compensation of debts pay.
which are not yet due.
In anger, C damaged the property be compensated must be duly
of D to the extent of P8,000.00. proven.

C filed in court for a collection of

money. D can set off the obligation
of C to pay him damages in the
ARTICLEof1284
amount P8,000.00 against his
debt of P10,000.00. If D alleged the
When one or both debts are
damage in court, he must prove
rescissible or voidable, they
the claim for damages.
may be compensated against
each other before they are
judicially
CASE: Ong vs. rescinded or
Court of Appeals
avoided.
(G.R. No. 75819, September 8,
1989)
Rescissible debts are debts
Fermin borrowed money to Mariano arising form contracts that can be
(his cousin) the amount of rescinded (canceled) due to causes
P160,000.00 and secured its like damage to one of the parties or
payment with four post-dated impairment of creditor’s rights.
checks. These are still valid but can be set
aside if the right to rescind is
Fermin stored in Mariano’s exercised by the affected party.
warehouse a quantity of zipper
Voidable debts are debts
valuing P181,000.00. Fermin claims
originating from contracts that can
that Mariano is denying access to
be annulled due to factors like lack
the zippers because of the non-
of consent, fraud, or duress. These
payment of the loan.
contracts are considered valid until
annulled by a court.
Mariano sued Fermin.
Compensation, where both parties
Fermin denied the liability and owe each other amounts, debts
contested that the debt was that are rescissible or voidable can
reduced to P120,000.00 because of be compensated or set off against
the partial payment and that the each other, even before they are
remaining balance of P120,000 .00 judicially rescinded or avoided. This
is offset by the P200,000.00 due means that a debtor who is also a
from Mariano. However, further creditor can still apply the concept
from the proceedings of the case, of compensation (i.e., mutual debts
both are stating inconsistent canceling out) while waiting for a
liabilities. court to officially rescind or annul
the contract.
Fermin has not proved the right to
However, this is subject to the
any damage as a result of the
condition that the debtor-creditor
claimed retention of the zippers by
relationship exists before the
Mariano. There was also no proof of
court's ruling on rescission or
the amount of such damages as he
annulment. The idea is to avoid
could not even say how many of
unjust enrichment and ensure
the zippers had been earlier
fairness before a legal declaration.
withdrawn by him.
It’s a safeguard in the legal system
to prevent someone from trying to
The Supreme Court ruled that for
avoid compensating debts by
judicial set-off to apply, the amount
delaying a court decision.
of damages or the claim sought to
 was notified by the debtor at
the time he gave his consent,
Example:
that he reserved his right to
A owes B P1,000.00, and B likewise the compensation.
owes A P1,000.00, procured
Assignment with the consent of
through force and initimidation and
debtor.
making it voidable.
When compensation has already
However, even if it is voidable, it is
taken place before the assignment,
still valid and enforceble until it is
there has already been an
annulled by a court. So until B
extinguishment of one of the other
successfully petitions the court to
obligations. A subsequent
annul the loan, the debt remains
assignment of an extinguished
valid and enforceable.
obligation cannot produce any
If the court later annuls B’s debt, A effect against the debtor.
still owes B P1,000.00. The effect of
annulment is retroactive. It is the
When the debtor consents to the
same as if there had been no
assignment of the credit; his
compensation.
consent constitutes a waiver of the
ARTICLE 1285 compensation, unless at the time
he gives consent, he informs the
The debtor who has consented assignor that he reserved his right
to the assignment of rights to the compensation
made by a creditor in favor of
a third person, cannot set up Example:
against the assignee the X owes Y P1,000.00 due on April
compensation which would 12, 1997. Y is likewise indebted to
pertain to him against the X in the same amount due on May
assignor, unless the assignor 6, 1997.
was notified by the debtor at
the time he gave his consent, On April 14, 1997, Y assigned his
that he reserved his right to credit to O with the consent of X
the compensation. who does not make any
reservation as to her right of
If the creditor communicated compensation which could
the cession to him but the occur on May 6, 1997.
debtor did not consent
thereto, the latter may set up On May 7, 1997, O demands
the compensation of debts payment from X the amount of
previous to the cession, but 1,000 assigned by Y to O.
not of subsequent ones.
Since X did not reserve the right to
If the assignment is made compensation when giving consent
without the knowledge of the to the assignment, X cannot use
debtor, he may set up the compensation to offset the debt
owed to O. This means that when O
(1) The debtor who has
demands payment from X on May
consented to the assignment
7, 1997, X must pay O the full P
of rights made by a creditor in
1,000
favor of a third person, cannot
set up against the assignee the
However, if at the time X gives
compensation which would
his consent to the assignment,
pertain to him against the
she reserves her right to the
assignor, unless the assignor
compensation, she can validly Assignment without the knowledge
invoke that the obligation has been of the debtor.
extinguished through
Example:
compensation.

X owes Y P1,000.00 due on April

(2)If the creditor 12, 1997 and another P2,000.00
communicated the cession to due on May 10, 1997. Likewise, Y
him but the debtor did not owes X P1,000.00 due on May 6,
consent thereto, the latter may 1997 and P2,000.00 due on May 9,
set up the compensation of 1997.
debts previous to the cession,
but not of subsequent ones. On May 7, 1997, Y assigns all his
credits to O. On May 15, 1997, Y
Assignment with the knowledge but
only informed X that he has
without the consent of debtor.
assigned all his credits to O. On
Cession is the transfer or June 1, 1997, O demands the
assignment of a right, typically a P1,000.00 and P2,000.00, X can
credit or debit, such as a right to invoke that all indebtedness have
collect a debt. been extinguished because
compensation has set in.

Example : The crucial part is the knowledge of

assignment and not the date of
X owes Y P1,000.00 due on April
assignment.
12, 1997 and another P2,000.00
due on May 10, 1997. Likewise, Y
owes X P1,000.00 due on May 6, ARTICLE 1286
1997 and P2,000.00 due on May 9, Compensation takes place
1997. by operation of law, even
On May 7, 1997, Y assigns all his though the debts may be
credits to O but X does not payable at different places,
consent to the assignment. On but there shall be an
June 1, 1997, O demands payment indemnity for expenses of
from X of the P1,000.00 and exchange or transportation
P2,000.00 assigned to him by Y. to the place of payment.
If all the requisites under Article
X can resist payment of the
1279 are present, compensation
P1,000.00 on the ground that
takes place by operation of law.
compensation has taken place
because it has become due before
The parties need not notify each
the cession, but he cannot set up
other that they intend to have their
compensation as to the P2,000.00
debts compensated. If there is
which has become due after the
complete compensation, the
cession.
parties need not do anything as the
(3)If the assignment is made obligations are completely
without the knowledge of the extinguished.
debtor, he may set up the
Example :
compensation of all credits
prior to the same and also later
If A, a resident of Davao owes B, a
ones until he had knowledge of
resident of Marikina P1,000.00 and
the assignment.
vice- versa, and both are due, A
and B do not have to go to the
places of payments as the Depositum is a contract by virtue of
compensation here is complete and which a person [depositary]
therefore both obligations are receives personal property
totally extinguished. belonging to another [depositor],
with the obligation of safely
But if B owes A P500.00, then there keeping it and of returning the
is only partial compensation, and A same.
has to go to Marikina for him to
Example:
receive the payment of B for the
balance of P500.00. A owes B P10,000.00. B owes A
P10,000.00 representing the value
A, the creditor, should be of the ring deposited by A which B
reimbursed by the debtor the failed to return.
amount of transportation expeses A
B, who is the depositary, cannot
has incurred in going to Marikina
claim legal compensation even if A
because, under Article 1247, the
fails to pay obligation.
extrajudicial expenses required for
payment shall be for the account of The remedy of B is to file an action
the debtor, unless it is otherwise against the recovery of the amount
stipulated. of P10,000.00.

The relation of the depositary to

the depositors is fiduciary in
character since it is based on trust
ARTICLE 1287 and confidence. B's claim for for
compensation against A would
Compensation shall not be involve breach of confidence.
proper when one of the debts
arises from a depositum or
from the obligations of a (2) Debts arising from the
depositary or of a bailee in obligations of a bailee in
commodatum. commodatum. The bailee in
Neither can compensation be commodatum acquires the use of
set up against a creditor who the thing loaned but not its fruits.
has a claim for support due by The bailee is obliged to pay the
gratuitous title, without ordinary expenses for the use and
prejudice to the provisions of preservation of the thing loaned.
The bailee cannot retain the thing
ARTICLE 1288 loaned on the ground that the
Neither shall there be bailor owes him something, even
compensation if one of the though it may be by reason of
debts consists in civil liability expenses. However, the bailee has
arising from a penal offense. the right of retention for damages
mentioned in Article 1951.
(1)Debts arising from a
Commodatum is a gratuitous
depositum or from the
contract whereby one of the parties
obligations of a depositary. A
delivers to another something not
deposit is constituted from the
consumable so that the latter may
moment a person receives a thing
use the same for a certain time and
belonging to another, with the
return it.
obligation of safely keeping it and
of returning the same. Example:
A owes B P5,000.00 and deposited to the father. The reason is that the
a necklace. B borrowed A’s son no longer needs the support in
necklace. arrears as the son was able to exist
even without the support of the
B must return it and cannot refuse
father.
by claiming compensation.
(4) Debts consisting of a civil
If B owes A the same amount of
liability arising from a penal
value of the necklace, B still must
offense.
return the necklace. However, A
can assert compensation of the Example:
value of the necklace against the
A is indebted to B by virtue of a
credit of B.
Contract of Loan. B is indebted to A
by virtue of an award of civil
damages in favor of A as a result of
(3) Debts arising from duty to
B’s conviction in inflicting physical
support. Compensation cannot
injuries on A.
likewise apply if the other
obligation is one of support to the In this case, there can be no
other party. compensation. The victim can
claim compensation while the
Thus, a father, who is required to
offender cannot claim
give support to his son, cannot
compensation. The prohibition in
claim that he need not give the
Article 1288 pertains only to the
support considering that his son
accused but not the victim of the
owes him the same amount of
crime.
money.

The law provides that this rule on ARTICLE 1289

gratuitous support shall be without
prejudice to the provisions of par 2 If a person should have against
Art 301 of the Civil Code which him several debts which are
provides that support in arrears can susceptible of compensation,
be compensated or renounced. the rules on the application of
payments shall apply to the
order of the compensation.

The rules on application of

Example: payments are provided for in
Subsection 1, Chapter 4, Book IV,
The father has not given his son
Title I of the Civil Code coveing
the amount of P4,000.00
Articles 1252 up tp 1254.
(equivalent to four months of
unremitted financial support). The
son owes his father P4,000.00.
Example:
In this case, there can be no
A owes X P3,000.00 due on April
compensation. The father cannot
11, 1997. X owes A :
refuse to give the financial support
to compensate for his son’s debt a. P3,000.00 without interest
because the right to receive b. P3,000.00 with interest at
support cannot be compensated 12% per annum in case of
because it is essential to the life of non-payment
the recipient.
All due on April 11, 1997
However, the support in arrears
may be compensated with the debt
X has several debts, therefore she requisites provided in Article 1279
must notify A which debt is being of the Code for automatic
compensated. compensation “even though the
creditors and debtors are not aware
If X does not designate the
of the compensation” were duly
indebtedness to which the
present.
compensation will apply, it will be
applied to the most onerous debt
(heavy burden) which is the
interest-bearing P3,000.00 debt
with 12% per annum in case of
non-payment.

ARTICLE 1290

When all the requisites

mentioned in Article 1279 are
present, compensation takes
effect by operation of law, and
extinguishes both debts to the
concurrent amount, even
though the creditors and
debtors are not aware of the
Compensation is the most
expedient way of extinguishing an
obligation. It is automatic and
occurs even though the creditors
and debtors are not aware of the
compensation.

CASE: Mindanao Portland

Cement vs. Court of Appeals
(G.R. No. L-62169, February 20,
1983)

Both corporations, petitioner

Mindanao Portland Cement and
Pacweld Steel Corp, were creditors
and debtors of each other, their
debts to each other consisting in
final and executory judgments of
the Court of First Instance in two
(2) separate cases, ordering the
payment to each other the sum of
P 10,000.00 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 P 10,000.00
pursuant to the provisions of
Articles 1278, 1279 and 1290 of
the Civil Code, since all the