Short answer. Generally no. For debts to be offset automatically by law, both must be sums of money, or, if they are things, they must be of the same kind and quality. A money debt and a debt of goods like rice are different in kind, so legal compensation does not apply.
What the law says
In order that compensation may be proper, it is necessary: (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
Civil Code, Article 1279 — Requisites of Legal Compensation. Read the full provision →
Legal compensation, briefly
Compensation is the law's way of cancelling out two debts when two people owe each other. Instead of each paying the other in full, the debts extinguish one another up to the smaller amount, automatically, once certain conditions exist. Article 1279 lists the conditions for this kind of automatic, legal compensation. Because it happens by operation of law rather than by anyone's choice, the article is strict about when it applies. If even one of the listed requisites is missing, legal compensation does not take effect, and the two obligations remain separately owing until they are paid or settled some other way.
Money against goods usually fails the 'same kind' test
The requisite that defeats a money-versus-rice set-off is the second one. The article requires 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. Money offsets money. Goods can offset goods only where they are of the same kind, rice against rice, of matching quality if a quality was specified. A debt of money and a debt of a commodity are not the same kind of thing, so they do not automatically wipe each other out under this article, however close their values might be.
Every requisite has to line up
Same-kind is only one of five conditions, and all must be satisfied together. The article also requires that each person be bound principally and be at the same time a principal creditor of the other; that both debts be due; that they be liquidated and demandable, meaning each amount is already determined and presently collectible; and that neither debt be subject to a retention or controversy started by a third person and communicated in time. So even two money debts will not compensate if, say, one of them is not yet due, or the amount is still unsettled, or a third party has laid claim to it.
You can still agree to offset
The failure of automatic compensation does not mean the debts can never be set off. What the parties cannot get by operation of law, they may arrange by agreement: you and the other person are free to agree that his money debt will be settled against your delivery of rice, on terms you both accept. That is a voluntary arrangement resting on consent, not the automatic mechanism this article governs. If you are relying on a set-off, or resisting one, it matters greatly which kind you are dealing with. It is worth having the arrangement reviewed before treating a debt as extinguished.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Banco De Oro Unibank, Inc. vs. Edgardo C. Ypil, Sr., et al, G.R. No. 212024, October 12, 2020 — read the decision on LawPhil →
- Union Bank of the Philippines vs. Development Bank of the Philippines, G.R. No. 191555, January 20, 2014 — read the decision on LawPhil →
- Philippine National Bank vs. Court of Appeals, et al, G.R. No. 108052, July 24, 1996 — read the decision on LawPhil →
- United Planters Sugar Milling Co., Inc. vs. The Hon. Court of Appeals, et al, G.R. No. 126890, July 11, 2007 — read the decision on LawPhil →