Short answer. No, not automatically. Article 1279 of the Civil Code requires that both debts be liquidated and demandable for legal compensation to operate. A claim whose amount is still disputed and unfixed is not liquidated, so it cannot cancel out a debt you clearly and presently owe.
What the law says
That they be liquidated and demandable
Civil Code, Article 1279 — Requisites of Legal Compensation. Read the full provision →
A debt must be liquidated before it can offset another
Legal compensation extinguishes two debts against each other, but only when each satisfies the conditions in Article 1279. One requisite is that they be liquidated and demandable. A debt is liquidated when its exact amount is known or can be determined by simple arithmetic, not by trial. A claim whose figure is still argued over, still to be proven, still uncertain, is unliquidated, and the law will not let an amount that has not yet been fixed be used to wipe out an obligation that is clear and certain. So you cannot refuse to pay what you plainly owe by pointing to a claim of yours whose value is still in dispute.
Why a disputed claim is treated differently
The rule keeps a definite obligation from being held hostage to an indefinite one. If a party could stop paying a fixed debt merely by asserting some larger, unproven counter-claim, every creditor could be stalled by manufactured disputes. Requiring liquidation means the offset only reaches claims already reduced to a certain sum, ones the parties agree on or that a simple computation settles. Requisite (5) reinforces this: compensation also fails where a debt is the subject of a controversy commenced by a third person and communicated in due time. Both provisions push in the same direction, that uncertainty defeats the automatic cancellation compensation provides.
What happens while the dispute is unresolved
Because your claim is not yet liquidated, your own clear debt remains due and payable now; the other side is entitled to collect it. Your remedy is to pursue your disputed claim on its own, and once it is finally determined and its amount fixed, it becomes liquidated and may then be capable of compensation, or simply collected. What you should not do is withhold a certain payment on the strength of an uncertain one, because that exposes you to the consequences of default, including interest and the costs of being pursued, on a debt the law already regards as demandable.
Agreement can bridge the gap
The strict requisites govern legal compensation, which happens by operation of law. Parties are still free to agree to a set-off by contract, and they may fix a disputed amount by compromise and then offset the agreed figure. So a negotiated settlement that liquidates your claim can achieve what the law will not impose while the sum is contested. Absent such an agreement or a final determination of the amount, however, the disputed claim stays outside compensation, and the debt you clearly owe continues to stand on its own until it is paid.
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 →