Article 1284

When one or both debts are rescissible or voidable, they may be compensated
against each other before they are judicially rescinded or avoided.

Kapag ang isa o parehong mga utang ay maaaring ikansela o ipawalang bisa, maaari
nilang bayaran ang bawat isa bago pa man ito ipawalang bisa o kanselahin ng
hukuman. (n)

Discussion:

Before rescissible or voidable debts are judicially rescinded or annulled, they are valid
debts. The parties may opt not to rescind or annul them. Consequently, until they shall
have been judicially declared void, they can be compensated against each other.

If the prescriptive period for the rescission or annulment of the debts had already
lapsed, there is automatic compensation and the same will not disturbed anymore.

0In other cases, if the debt is rescinded or annulled, the compensation is also
automatically cancelled and there shall be restitution of what each party had received
before the rescission or annulment.
Example: D owes C 1000 Php, Subsequently, D through fraud, was able to make C sign
a promissory note that C is indebted to D for the same amount. The debt of D is valid
but that of C is voidable. Before the debt of C is nullified, both debts may be
compensated against each other if all the requisites for legal compensation are present.
Suppose C's debt is later on annulled by the court, is D still liable considering the
compensation had already taken place? Yes. The effect of the annulment is retroactive. It
is the same as if there had been no compensation.

Compensation of rescissible or voidable debts-valid unless the same is rescinded or

annulled by the court

Reason: before judicial rescission or annulment, the debts can be compensated

but the same is c a n c e l l e d t h e m o m e n t t h e c o u r t decrees the rescission
or annulment since the effect of the court’s decree is retroactive