G.R. No. L-62169 February 28, 1983
MINDANAO PORTLAND CEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P. LAQUIHON, respondents.

FACTS

The case originated from two separate final and executory judgments rendered by the Court of First Instance of Manila. In Civil Case No. 75179, the court ordered petitioner Mindanao Portland Cement Corporation (MPCC) to pay respondent Pacweld Steel Corporation (Pacweld) the sum of P10,000.00 as attorney’s fees. In a different case, Civil Case No. 68346, the same court ordered Pacweld to pay MPCC an identical sum of P10,000.00, also as attorney’s fees. Both judgments had become final and executory.
Subsequently, Atty. Casiano P. Laquihon, counsel for Pacweld, filed a motion in Civil Case No. 75179, seeking to amend the judgment to order MPCC to pay the P10,000.00 attorney’s fees directly to him instead of to Pacweld. MPCC opposed this motion, arguing that its obligation to Pacweld had been extinguished by legal compensation or set-off due to Pacweld’s reciprocal obligation to pay MPCC the same amount from the other case. The trial court granted Atty. Laquihon’s motion and issued the orders now subject to appeal.

ISSUE

Whether the two reciprocal obligations for attorney’s fees between MPCC and Pacweld were extinguished by legal compensation, thereby rendering the trial court’s order for direct payment to Atty. Laquihon a void alteration of a final judgment.

RULING

The Supreme Court ruled in favor of MPCC, annulling the appealed orders. The legal logic is grounded on the principle of legal compensation under the Civil Code. Articles 1278, 1279, and 1290 provide that compensation takes place by operation of law when two persons are mutually debtors and creditors of each other, provided all requisites are present: both parties are bound principally; the debts consist of a sum of money; both are due, liquidated, and demandable; and neither debt is under retention or controversy by a third party.
All these requisites were conclusively present. Both MPCC and Pacweld were principal debtors and creditors of each other for the sum of P10,000.00 based on final judgments. The debts were both for money, due, liquidated, and demandable, with no third-party claims. Consequently, legal compensation automatically extinguished both debts to the concurrent amount from the moment the second obligation became due. The Court emphasized that compensation operates by law, even without the parties’ awareness.
Therefore, the trial court’s order amending the final judgment to direct payment to Atty. Laquihon was a substantive alteration of a final judgment, issued without jurisdiction. It could not defeat the compensation that had already extinguished the underlying obligation of MPCC to Pacweld. The direct payment order was void.