64. Mondragon Personal Sales v. Sola, Jr.

Compensation

MONDRAGON PERSONAL SALES, INC. v. VICTORIANO S. SOLA, JR. G.R. no. 174882, January 21, 21! P"ra#$a, J. %a&$'( Petitioner Mondragon Personal Sales entered into a Contract of Services with respondent Sola whereby the latter would provide service facilities (bodega cum oce) to petitioner’s products, sales force and customers for a consideration of  comm commis issi sion on or serv servic ice e fee fee whic which h at a cert certai ain n rate rate of the the mont monthl hly y sale sales s of  Mondragon Prior to the e!ecution of the said contract, respondent’s wife had an e!isting obligation with petitioner Such obligation was ac"nowledged and con#rmed by the respondent and made himself (with his wife) liable to pay such debt on installment basis $y virtue of which, the petitioner withheld the payment of the respondent’s servic service e fees fees and and applie applied d the the same same as partia partiall payme payments nts to the debt which which he obligated to pay %hereafter, respondent closed and suspended the operation of his oce oce cum cum bode bodega ga and and subs subse& e&ue uent ntly ly #led #led for for an acti action on for for acco accoun unti ting ng and and rescission against the petitioner  %he '%C ruled in favor of the petitioner Mondragon and held that there was no fraud on the part of the latter that would rescind their contract and that it is correct when it deducted the service commission of Sola to his wife’s account %he C reversed the '%C’s decision

I''u"( hether legal compensation under rt *+- of the Civil Code would apply in this case )"#*(  .es  .es %he petitioner/s act of withholding withholding respondent/s respondent/s service fees0commissions and applying them to the latter/s outstanding obligation with the former is merely an ac"nowledgment of the legal compensation that occurred by operation of law between the parties Compensation is a mode of e!tinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocally debtors and creditors of each other 1egal compensation ta"es place by operation of law when all the re&uisites are present, as opposed to conv conven enti tion onal al comp compen ensa sati tion on whic which h ta" ta"es place lace when when the the part partie ies s agr agree to compensate their mutual obligations even in the absence of some re&uisites 1egal compensation re&uires the concurrence of the following conditions2 (*) %hat %hat each each one of the obligo obligors rs be bound bound princip principall ally, y, and that that he be at the same time a principal creditor creditor of the other3 (+) (+) %hat %hat both both debt debts s cons consis istt in a su sum m of mone money, y, or if the the thin things gs due due are are consumable, they be of the same "ind, and also of the same &uality if the latter has been stated3 (4) %hat the two two debts be be due3 (5) %hat they be li&uidated li&uidated and demandable3

(6) %hat over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor ll the re&uisites for legal compensation are present in this case Petitioner and respondent are both principal obligors and creditors of each other %heir debts to each other consist in a sum of money 'espondent ac"nowledged and bound himself  to pay petitioner the amount of P*,-4,*654 which was already due, while the service fees owing to respondent by petitioner become due every month 'espondent/s debt is li&uidated and demandable, and petitioner/s payments of  service fees are li&uidated and demandable every month as they fall due 7inally, there is no retention or controversy commenced by third persons over either of the debts %hus, compensation is proper up to the concurrent amount where petitioner owes respondent P*+6,8588* for service fees, while respondent owes petitioner P*,-4,*654