Assignment no 4: Extinguishment of Obligations

[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:
1. Petitioner's/Plaintiff's claim/s

Ong Wan Sieng was a tenant at some of Gan Tion's

properties. In 1961, the latter filed an eviction lawsuit against
the former, alleging non-payment of rents of ₱ 180 per month,
or ₱ 360 total, for August and September of that year.

2. Respondent’s/Defendant’s claim/s

The defendant contesting the claim, claiming that the

agreed-upon monthly rental was just ₱ 160, which he had
offered but the plaintiff has declined.

3. Decision on lower courts

The plaintiff won a favorable verdict at the municipal court
(manila), but the Court of First Instance reversed the judgment
and dismissed the complaint on July 2, 1962, ordering the
plaintiff to pay the defendant ₱ 500 in attorney's fees. The
judgment of the Court of appeals was reversed, and the writ of
execution of CFI Manila is set aside. The petition was accepted
by the appellate court but eventually decided for the respondent,
holding that although "respondent Ong is indebted to the
petitioner for unpaid rentals in an amount of more than ₱ 4,000"
the sum of ₱ 500 could not be the subject of legal compensation,
In the opinion of said Court, the requisites of legal compensation,
namely, that the parties must be creditors and debtors of each
other in their own right (Art. 1278, Civil Code) and that each of
 them must be bound principally and simultaneously be a principal
creditor of the other (Art. 1279), are not present in the instant
case.

ISSUES
4. Issue/s
Whether there was legal compensation between petitioner
and private respondent.

HELD:
5. Disposition of the case
The award is granted in the litigant's favor, not his
counsel's, and is justified as indemnity for losses recoverable by
the former under the instances listed in Article 2208 of the Civil
Code; as a result, legal recompense for such credit may be
appropriate, which obviously forcing the petitioner to pay a debt
of ₱ 500 when his creditor owes him more than ₱ 4,000 would
be unreasonable.

6. Dictum
While the Court of Appeals reasoned that the attorney's
fees are a trust fund for the benefit of the lawyer, which would
have to be turned over by the client to his counsel and thus
cannot be subject to legal compensation, the Supreme Court
disagreed, ruling that the award is in the litigant's favor, not the
counsel's. The judgment creditor is the plaintiff, and he or she
has the power to enforce the legal compensation judgment
through execution. The facts of the case demonstrated that
enforcing it would be unreasonable because the respondent
owes the petitioner more than ₱ 4,000, hence the writ of
execution was dismissed.