G.R. No. L-22490 May 21, 1969
GAN TION, petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF MANILA, respondents.

FACTS

Petitioner Gan Tion owned premises where respondent Ong Wan Sieng was a tenant. In 1961, Gan Tion filed an ejectment case against Ong Wan Sieng for non-payment of rents for August and September 1961, alleging a monthly rental of P180. Ong Wan Sieng denied this, claiming the agreed rental was only P160, which he had offered to pay but was refused. The municipal court ruled in favor of Gan Tion, but on appeal, the Court of First Instance reversed the judgment on July 2, 1962, dismissed the complaint, and ordered Gan Tion to pay Ong Wan Sieng P500 as attorney’s fees. This judgment became final. On October 10, 1963, Gan Tion served notice on Ong Wan Sieng increasing the rent to P180 a month effective November 1, and demanded unpaid rents in arrears at the old rate totaling P4,320 for the period from August 1961 to October 1963. Meanwhile, Ong Wan Sieng obtained a writ of execution for the P500 attorney’s fees judgment over Gan Tion’s opposition. Gan Tion filed a petition for certiorari in the Court of Appeals, pleading legal compensation, claiming that Ong Wan Sieng’s debt to him for unpaid rents (P4,320) extinguished his own debt for the attorney’s fees (P500). The Court of Appeals decided for Ong Wan Sieng, holding that the P500 could not be subject to legal compensation as it was a “trust fund for the benefit of the lawyer,” and that the requisites of legal compensation were not met because the real creditor for the P500 was Ong Wan Sieng’s counsel.

ISSUE

Whether or not there has been legal compensation between petitioner Gan Tion and respondent Ong Wan Sieng, specifically whether the judgment for attorney’s fees in favor of Ong Wan Sieng can be compensated by the unpaid rentals owed by Ong Wan Sieng to Gan Tion.

RULING

Yes, legal compensation has taken place. The Supreme Court reversed the judgment of the Court of Appeals and set aside the writ of execution. The Court held that an award for attorney’s fees is made in favor of the litigant, not his counsel, and is justified as indemnity for damages recoverable by the litigant under Article 2208 of the Civil Code. Therefore, it is the litigant (Ong Wan Sieng) who is the judgment creditor and may enforce the judgment. This credit may properly be the subject of legal compensation. The requisites of legal compensation under Articles 1278 and 1279 of the Civil Code are present: the parties are mutually creditors and debtors in their own right. It would be unjust to compel Gan Tion to pay his debt of P500 when his creditor, Ong Wan Sieng, is admittedly indebted to him for more than P4,000.