GAN TION V COURT OF APPEALSMAKALINTAL; May 21, 1969

FACTS- Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. - In 1961 the latter filed an ejectment case against the former, alleging non-payment of rents for August and September of that year, at P180 a month, or P360 altogether. Defendant denied the allegation and said that the agreed monthly rental was only P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained a favorable judgment in the municipal court, but upon appeal the CFI, reversed the judgment and dismissed the complaint, and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees. That judgment became final.- On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month, effective November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a period from August 1961 to October 1963.- Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his favor. - Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. - The appellate court accepted the petition 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 P4,000.00," the sum of P500 could not be the subject of legal compensation, it being a "trust fund for the benefit of the lawyer, which would have to be turned over by the client to his counsel." - 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 one of them must be bound principally and at the same time be a principal creditor of the other (Art. 1279), are not present in the instant case, since the real creditor with respect to the sum of P500 was the defendant's counsel.

ISSUE WON the award for attorney’s fees may be the subject of legal compensation

HELDYES- The award for attorney's fees is made in favor of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable by the former in the cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by execution. Such credit, may properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for more than P4,000.Disposition The judgment of the Court of Appeals was reversed, and the writ of execution issued by the CFI of Manila is set aside. Costs against respondent.

SILAHIS MARKETING CORP V IACFERNAN; December 7, 1989

NATUREPetition for certiorari to review the decision of IAC disallowing Silahis Marketing Corporation’s counterclaim for commission to partially offset the claim against it of Gregorio de Leon (doing business under the name and style of Mark Industrial Sales) for the purchase price of certain merchandise.

FACTS- On various dates in Oct-Dec 1975, De Leon sold and delivered to Silahis various items of merchandise in the aggregate amount of P22,213.75 payable within 30days from date of the covering invoices. Allegedly due to Silahis' failure to pay its account upon maturity despite repeated demands, de Leon filed before CFI Manila a complaint for the collection of the said accounts including accrued interest thereon in the amount of P 661.03 and attorney's fees of P 5,000.00 plus costs of litigation.- Silahis admitted the allegations insofar as the invoices were concerned but presented a debit memo for P 22,200 as unrealized profit for a supposed commission that Silahis should have received from de Leon for the sale of sprockets made directly to Dole Philippines, Inc in violation of their usual practice. Silahis also claim that it is entitled to return the stainless steel screen which was found defective by its client, Borden International, Davao City, and to have the corresponding amount cancelled from its account with de Leon. - RTC confirmed the liability of Silahis for the claim of de Leon but at the same time ordered that it be partially offset by Silahis' counterclaim as contained in the debit memo for unrealized profit and commission. IAC set aside the RTC decision and dismissed herein Silahis’ counterclaim for lack of factual or legal basis.

ISSUEWON de Leon is liable to Silahis for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Inc without coursing the same through Silahis.

HELDRatio Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of contract. Compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: “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;

[3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons

and communicated in due time to the debtor.Reasoning Silahis admits the validity of its outstanding accounts with de Leon. But whether de Leon is liable to pay Silahis a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from taking place. -There is no evidence on record from which it can be inferred that there was any agreement between Silahis and de Leon prohibiting the latter from selling directly to Dole Philippines, Inc. The debit memo is not a binding contract since it was not signed by de Leon nor was there any mention therein of any commitment by the latter to pay any commission to the former involving the subject sale of sprockets.Disposition Decision affirmed

MIRASOL V CAQUISUMBING; February 1, 2001

FACTS- The Mirasols are sugarland owners and planters. In 1973-1974, they produced 70,501.08 piculs 1 of sugar, 25,662.36 of which were assigned for export. The following crop year, their acreage planted to the same crop was lower, yielding 65,100 piculs of sugar, with 23,696.40 piculs marked for export.- Private respondent Philippine National Bank (PNB) financed the Mirasols' sugar production venture for crop years, 1973-1974 and 1974-1975 under a crop loan financing scheme. Under said scheme, the Mirasols signed Credit Agreements, a Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB. The Chattel Mortgage empowered PNB as the petitioners' attorney-in-fact to negotiate and to sell the latter's sugar in both domestic and export markets and to apply the proceeds to the payment of their obligations to it.- Exercising his law-making powers under Martial Law, then President Ferdinand Marcos issued Presidential Decree (P.D.) No. 579 2 in November, 1974. The decree authorized private respondent Philippine Exchange Co., Inc. (PHILEX) to purchase sugar allocated for export to the United States and to other foreign markets. The price and quantity was determined by the Sugar Quota Administration, PNB, the Department of Trade and Industry, and finally, by the Office of the President. The decree further authorized PNB to finance PHILEX's purchases. Finally, the decree directed that whatever profit PHILEX might realize from sales of sugar abroad was to be remitted to a special fund of the national government, after commissions, overhead expenses and liabilities had been deducted. The government offices and entities tasked by existing laws and administrative regulations to oversee the sugar export pegged the purchase price of export sugar in crop years 1973-1974 and 1974-1975 at P180.00 per picul. - PNB continued to finance the sugar production of the Mirasols for crop years 1975-1976 and 1976-1977. These crop loans and similar obligations were secured by real estate mortgages over several properties of the Mirasols and chattel mortgages over standing crops. Believing that the proceeds of their sugar sales to PNB, if properly accounted for, were more than enough to pay their obligations, petitioners asked PNB for an accounting of the proceeds of the sale of their export sugar. PNB ignored the request. Meanwhile, petitioners continued to avail of other loans from PNB and to make unfunded withdrawals from their current accounts with said bank. PNB then asked petitioners to settle their due and demandable accounts. As a result of these demands for payment, petitioners on August 4, 1977, conveyed to PNB real properties valued at P1,410,466.00 by way of dacion en pago, leaving an unpaid overdrawn account of P1,513,347.78.- On August 10, 1982, the balance of outstanding sugar crop and other loans owed by petitioners to PNB stood at P15,964,252.93. Despite demands, the Mirasols failed to settle said due and demandable accounts. PNB then proceeded to extrajudicially foreclose the mortgaged properties. After applying the proceeds of the auction sale of the mortgaged realties, PNB still had a deficiency claim of P12,551,252.93.- Petitioners continued to ask PNB to account for the proceeds of the sale of their export sugar for crop years 1973-1974 and 1974-1975, insisting that said proceeds, if properly liquidated, could offset their outstanding obligations with the bank. PNB remained adamant in its stance that under P.D. No. 579, there was nothing to account since under said law, all earnings from the export sales of sugar pertained to the National Government and were subject to the disposition of the President of the Philippines for public purposes.

ISSUES

1. WON the Trial Court has jurisdiction to declare a statute unconstitutional without notice to the Solicitor General where the parties have agreed to submit such issue for the resolution of the Trial Court (whether it was proper for the trial court to have exercised judicial review)2. WON PD 579 and subsequent issuances 7 thereof are unconstitutional.3. WON the Honorable Court of Appeals committed manifest error in not applying the doctrine of piercing the corporate veil between respondents PNB and PHILEX.4. WON the Honorable Court of Appeals committed manifest error in upholding the validity of the foreclosure on petitioners property and in upholding the validity of the dacion en pago in this case.5. WON the Honorable Court of Appeals committed manifest error in not awarding damages to petitioners grounds relied upon the allowance of the petition.

HELD1. YES. The Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only in this Court, but in all Regional Trial Courts. Pivotal issue: In this case, the Solicitor General was never notified about Civil Case No. 14725. Nor did the trial court ever require him to appear in person or by a representative or to file any pleading or memorandum on the constitutionality of the assailed decree. Hence, the Court of Appeals did not err in holding that lack of the required notice made it improper for the trial court to pass upon the constitutional validity of the questioned presidential decrees.2. The present case was instituted primarily for accounting and specific performance. The Court of Appeals correctly ruled that PNB's obligation to render an accounting is an issue, which can be determined, without having to rule on the constitutionality of P.D. No. 579. In fact there is nothing in P.D. No. 579, which is applicable to PNB's intransigence in refusing to give an accounting. The governing law should be the law on agency, it being undisputed that PNB acted as petitioners' agent. In other words, the requisite that the constitutionality of the law in question be the very lis mota of the case is absent. Thus we cannot rule on the constitutionality of P.D. No. 579.3. To resolve the third issue, petitioners ask us to apply the doctrine of piercing the veil of corporate fiction with respect to PNB and PHILEX. Petitioners submit that PHILEX was a wholly-owned subsidiary of PNB prior to the latter's privatization.- We note, however, that the appellate court made the following finding of fact:

"1. PNB and PHILEX are separate juridical persons and there is no reason to pierce the veil of corporate personality. Both existed by virtue of separate organic acts. They had separate operations and different purposes and powers."

4. On the fourth issue, the appellate court found that there were two sets of accounts between petitioners and PNB, namely:

"1. The accounts relative to the loan financing scheme entered into by the Mirasols with PNB (PNB's Brief, p. 16) On the question of how much the PNB lent the Mirasols for crop years 1973-1974 and 1974-1975, the evidence recited by the lower court in its decision was deficient. We are offered (sic) PNB the amount of FIFTEEN MILLION NINE HUNDRED SIXTY FOUR THOUSAND TWO HUNDRED FIFTY TWO PESOS and NINETY THREE Centavos (Ps15,964,252.93) but this is the alleged balance the Mirasols owe PNB covering the years 1975 to 1982."2. The account relative to the Mirasol's current account Numbers 5186 and 5177 involving the amount of THREE MILLION FOUR HUNDRED THOUSAND Pesos (P3,400,000.00) PNB claims against the Mirasols. (PNB's Brief, p. 17) HTSaEC"In regard to the first set of accounts, besides the proceeds from PNB's sale of sugar (involving the defendant PHILEX in relation to the export portion of the stock), the PNB foreclosed the Mirasols' mortgaged properties realizing therefrom in 1982 THREE MILLION FOUR HUNDRED THIRTEEN

THOUSAND Pesos (P3,413,000.00), the PNB itself having acquired the properties as the highest bidder."As to the second set of accounts, PNB proposed, and the Mirasols accepted, a dacion en pago scheme by which the Mirasols conveyed to PNB pieces of property valued at ONE MILLION FOUR HUNDRED TEN THOUSAND FOUR HUNDRED SIXTY-SIX Pesos (Ps1,410,466.00) (PNB's Brief, pp. 16-17)." 25

- Petitioners now claim that the dacion en pago and the foreclosure of their mortgaged properties were void for want of consideration. Petitioners insist that the loans granted them by PNB from 1975 to 1982 had been fully paid by virtue of legal compensation. Hence, the foreclosure was invalid and of no effect, since the mortgages were already fully discharged. It is also averred that they agreed to the dacion only by virtue of a martial law Arrest, Search, and Seizure Order (ASSO).- We find petitioners' arguments unpersuasive. Both the lower court and the appellate court found that the Mirasols admitted that they were indebted to PNB in the sum stated in the latter's counterclaim. 26 Petitioners nonetheless insist that the same can be offset by the unliquidated amounts owed them by PNB for crop years 1973-74 and 1974-75. Petitioners' argument has no basis in law. For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code must be present. Said articles read as follows:

"ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other."ARTICLE 1279 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; (3)

That the two debts are due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor."In the present case, set-off or compensation cannot take place between the parties because:First, neither of the parties are mutually creditors and debtors of each other. Under P.D. No. 579, neither PNB nor PHILEX could retain any difference claimed by the Mirasols in the price of sugar sold by the two firms. P.D. No. 579 prescribed where the profits from the sales are to be paid, to wit: "SECTION 7 . . After deducting its commission of two and one-half (2-1/2%) percent of gross sales, the balance of the proceeds of sugar trading operations for every crop year shall be set aside by the Philippine Exchange Company, Inc,. as profits which shall be paid to a special fund of the National Government subject to the disposition of the President for public purposes."

- Thus, as correctly found by the Court of Appeals, "there was nothing with which PNB was supposed to have off-set Mirasols' admitted indebtedness." - Second, compensation cannot take place where one claim, as in the instant case, is still the subject of litigation, as the same cannot be deemed liquidated. 5. In the instant case, petitioners have failed to show malice or bad faith 32 on the part of PNB in failing to render an accounting. Absent such showing, moral damages cannot be awarded. The same applies to attorney’s fees and costs of suitDisposition Petition is DENIED and the assailed decision of the respondent court in CA-G.R. CV 38607 AFFIRMED.

JESUS M. MONTEMAYOR vs. VICENTE D. MILLORAG.R. No. 168251 July 27, 2011

FACTS: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 Vicente’s 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 which was docketed as Civil Case No. Q-93-17255. On October 19, 1993, Vicente filed his Answer interposing a counterclaim for attorney’s 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 filed.

ISSUE: Whether compensation can properly be applied despite the absence of a specific amount in the decision representing respondent’s counterclaim against the specific amount of award mentioned in the decision in favor of the petitioner.

HELD:Yes. For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code, quoted below, must be present.ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.ARTICLE 1279. 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;(3) That the two debts be due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor."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 x xx." When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment. We have restated this in Solinap v. Hon. Del Rosario where we held that compensation takes place only if both obligations are liquidated.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 attorney’s fees which the RTC had already determined to be equivalent to whatever amount

recoverable from Vicente. The said attorney’s 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 Jesus.