Case Digest: Mondragon Personal Sales vs Sola Jr. 689 SCRA 18

Mondragon Personal Sales vs Sola Jr. 689 SCRA 18

Subject: Obligations and Contracts

FACTS

Petitioner Mondragon Personal Sales entered into a Contract of Services with respondent Sola whereby the latter would provide service facilities (bodega cumoffice) to petitioner’s products, sales force and customers for a consideration of commission or service fee which at a certain rate of the monthly sales of Mondragon.

Prior to the execution of the said contract, respondent’s wife had an existing obligation with petitioner. Such obligation was acknowledged and confirmed by the respondent and made himself (with his wife) liable to pay such debt on installment basis. By virtue of which, the petitioner withheld the payment of the respondent’s service fees and applied the same as partial payments to the debt which he obligated to pay. Thereafter, respondent closed and suspended the operation of his office cum bodega and subsequently filed for an action for accounting and rescission against the petitioner.

The RTC 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. The CA reversed the RTCs decision.

ISSUE

Whether or not legal compensation under Art. 1279 of the Civil Code would apply in this case.

RULING

Yes. The petitioner’s act of withholding respondent’s service fees/commissions and applying them to the latter’s outstanding obligation with the former is merely an acknowledgment of the legal compensation that occurred by operation of law between the parties.

Under the law, 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 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.

All the requisites for legal compensation are present in this case. Petitioner and respondent are both principal obligors and creditors of each other. Their debts to each other consist in a sum of money. Respondent acknowledged and bound himself to pay petitioner the amount of P1,973,154.73 which was already due, while the service fees owing to respondent by petitioner become due every month. Respondent’s debt is liquidated and demandable, and petitioner’s payments of service fees are liquidated and demandable every month as they fall due. Finally, there is no retention or controversy commenced by third persons over either of the debts. Thus, compensation is proper up to the concurrent amount where petitioner owes respondent P125,040.01 for service fees, while respondent owes petitionerP1,973,154.73.