You are on page 1of 7




The Petioners Lao and Manansala entered into a Contract of Lease

with Special Plans Incorporated (SPI). Upon expiration of the
contract, it was further renewed for another eight months.
Petitioners did not pay theallotted rental fees which prompted SPI
to send a demand letter asking for full payment of rentals in
arrears. Petitioners did not give payment, giving the reason that
SPI failed to deliver the leased premises for their intendeduse and
because of this they incurred expenses for necessary repairs as
well as expenses for the repair of structural defects. They
counterclaimed SPI to pay the sum of 422,000 pesos as actual damages
against the claimof SPI of 118,000 for accumulated unpaid rentals.

The Metropolitan Court found that the unpaid rentals only

amounted to 95,000 pesos and declared SPIresponsible for
repairing the structural defects of the leased premises and thus
dismissed SPIs case. SPI thenappealed to the Regional Trail
Court of Quezon City which then modified the decision of the
lower court,disagreeing on the off-setting of the amount allegedly
spent by the petitioners for the repairs of the structuraldefects of
subject property with their unpaid rentals and ordered the
Petitioners to pay 95,000 for unpaid rentals.The petitioners then
appealed to the Court of Appeals wherein they asserted that the
amount of 545,000.00 thatthey spent for repairs, P125,000.00 of
which was spent on structural repairs, should be judicially
compensated against the said unpaid rentals amounting to 95,000.00.


Whether or not the unpaid rentals should be judicially

compensated with the expenses incurred by thePlaintiffs?
Held: Petition Dismissed.In order that compensation to take place
two persons, in their own right, should be creditors and debtorsof
each other. In order for compensation to be proper, it is necessary
1. Each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
2. 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;
3. The two debts are due:
4. The debts are liquidated and demandable;
5. Over neither of them be any retention or controversy,
commenced by third parties andcommunicated in due time to
the debtor.

The Petitioners failed to properly discharge their burden to

show that the debts are liquidated anddemandable. A claim is
liquidated when the amount and time of payment is fixed. If
acknowledged by the debtor,although not in writing, the claim
must be treated as liquidated. When the defendant, who has an
unliquidatedclaim, sets it up by way of counterclaim, and a
judgment is rendered liquidating such claim, it can be
compensatedagainst the plaintiffs claim from the moment it is
liquidated by judgment. Compensation takes place only if both
obligations are liquidated.



On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente)

obtained a loan of P400,000.00 from petitioner Dr. Jesus M.
Montemayor (Jesus) as evidenced by a promissory note executed by
Vicente. On August 10, 1990, the parties executed a loan contract
wherein it was provided that the loan has a stipulated monthly
interest of 2% and that Vicente had already paid the amount
of P100,000.00 as well as the P8,000.00 representing the interest for
the period July 24 to August 23, 1990.
Subsequently and with Vicentes consent, the interest rate was
increased to 3.5% or P10,500.00 a month. From March 24, 1991 to
July 23, 1991, or for a period of four months, Vicente was supposed to
pay P42,000.00 as interest but was able to pay only P24,000.00. This
was the last payment Vicente made. Jesus made several demands for
Vicente to settle his obligation but to no avail.

Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a
Complaint for Sum of Money against Vicente. On October 19, 1993,
Vicente filed his Answer interposing a counterclaim for attorneys fees
of not less than P500,000.00. Vicente claimed that he handled
several cases for Jesus but he was summarily dismissed from
handling them when the instant complaint for sum of money was

Whether or not the obligations are liquidated in order for legal
compensation to take place.


For legal compensation to take place, the requirements set forth in

Articles 1278 and 1279 of the Civil Code must be present.

A debt is liquidated when its existence and amount are determined. It

is not necessary that it be admitted by the debtor. Nor is it necessary
that the credit appear in a final judgment in order that it can be
considered as liquidated; it is enough that its exact amount is
known. And a debt is considered liquidated, not only when it is
expressed already in definite figures which do not require verification,
but also when the determination of the exact amount depends only
on a simple arithmetical operation
In the instant case, both obligations are liquidated. Vicente has the
obligation to pay his debt due to Jesus in the amount
of P300,000.00 with interest at the rate of 12% per annum counted
from the filing of the instant complaint on August 17, 1993 until fully
paid. Jesus, on the other hand, has the obligation to pay attorneys
fees which the RTC had already determined to be equivalent to
whatever amount recoverable from Vicente. The said attorneys fees
were awarded by the RTC on the counterclaim of Vicente on the basis
of quantum meruit for the legal services he previously rendered to

Insular Investment and Trust Corp. v. Capital One Equities



Petitioner Insular Investment and Trust Corporation (IITC) and

respondents Capital One Equities Corporation (COEC) and Planters
Development Bank (PDB) are regularly engaged in the trading,
sale and purchase of Philippine treasury bills.

IITC sent COEC a letter dated June 3, 1994, demanding that COEC
deliver to it (IITC) the P139,833,392.00 worth of treasury bills or
return the full purchase price. In either case, it also demanded
that COEC (1) pay IITC the amount of P1,729,069.50 representing
business opportunity lost due to the non-delivery of the treasury
bills, and (2) deliver treasury bills worth P121,050,000 with the
same maturity dates originally purchased by IITC.
COEC sent a letter-reply dated June 9, 1994 to IITC in which it
acknowledged its obligation to deliver the treasury bills
worth P139,833,392.00 which it sold to IITC and formally
demanded the delivery of the treasury bills
worth P186,774,739.49 which it purchased from IITC. COEC also
demanded the payment of lost profits in the amount
of P3,253,250.00. Considering that COEC and IITC both have
claims against each other for the delivery of treasury bills, COEC
proposed that a legal set-off be effected, which would result in
IITC owing COEC the difference of P46,941,446.49.

In its June 13, 1994 letter to COEC, IITC rejected the suggestion
for a legal setting-off of obligations, alleging that it merely acted
as a facilitator between PDB and COEC.


Whether or not legal compensation may be allowed.


Yes. Based on the foregoing, in order for compensation to be

valid, the five requisites mentioned in the abovequoted Article
1279 should be present, as in the case at bench. The lower courts
have already determined, to which this Court concurs, that IITC
acted as a principal in the purchase of treasury bills from PDB and
in the subsequent sale to COEC of the COEC T-Bills. Thus, COEC
and IITC are principal creditors of each other in relation to the sale
of the COEC T-Bills and IITC T-Bills, respectively.

Because all the stipulations under Article 1279 are present in this
case, compensation can take place. COEC is allowed to set-off its
obligation to deliver the IITC T-Bills against IITCs obligation to
deliver the COEC T-Bills.
Soriano v. People


Evelyn Alagao (Evelyn), daughter of private complainant

Consolacion Alagao(Alagao), as borrower-mortgagor, executed a
Contract of Loan Secured by Real Estate Mortgage with
Special Power to sell mortgage property without judicial
proceedings in favor of petitioner as lender-mortgagee. The
instrument provides for a P40,000 loansecured by a parcel of land
registered in Evelyns name. It likewise provides that the loanwas to be
paid two years from the date of execution of the contract
and that Evelynagrees to give petitioner of every harvest from her
cornland until the full amount of theloan has been paid, starting from
the first harvest. Based on Alagaos testimony, the firstharvest
was made only in September 1994. Petitioner on the other hand
claims that fromthe time the loan was obtained until September
1994, there were already four harvests.During pre-trial, it was
admitted by Alagao that she did not only receive P40,000
asprovided in the contract of loan but P51,730 in the form of fertilizers
and cash advances.Alagao and some companions delivered 398
sacks of corn grains to petitioner. Petitionerprepared a voucher
indicating that Alagao had received the amount of P85,607 as
fullpayment for the 398 sacks of corn grains. Alagao signed said
voucher even if she onlyreceived P3,000. According to Alagao, 64
of the 398 sacks will serve as partial paymentof her P40,000
loan with petitioner while the remaining balance will come
from theP85,607 cash she was supposed to receive as payment for the
corn grains delivered so shecan redeem her daughters land title.The
Regional Trial Court (RTC) of Misamis Oriental, Branch 40,
rendered a decisionfinding petitioner guilty beyond reasonable
doubt of the crime of estafa. However, theCA set petitioners
conviction aside in the assailed decision. The CA ruled that
theprosecution failed to establish that petitioner made false
pretenses, fraudulent acts orfraudulent means to induce
Alagao to deliver to her the 398 sacks of corn grains. In fact,in
Alagaos testimony, she admitted that she delivered the
corn grains to petitionerbecause the latter was demanding
payment from her and she wanted to pay her obligationof P40,000 to
petitioner so that she could get back the title of her daughters
mortgaged property and the balance of the total cash value of the
398 sacks of corn. Thus, the CAheld, in the absence of deceit,
petitioners liability is only civil. Unsatisfied, petitioner isnow before
the Supreme Court questioning her civil liability.

Whether legal compensation is proper


Yes. Compensation is a mode of extinguishing to the concurrent amount,

the debtsof persons who in their own right are creditors and
debtors of each other. The object of compensation is the
prevention of unnecessary suits and payments through the
mutualextinction by operation of law of concurring debts.
Article 1279 of the Civil Codeprovides for the requisites for
compensation to take effect and the Court ruled that all the
requisites are present in the case at bar.